Tsung-Sheng Tsai

Judicial Torture as a Screening Device

Judicial torture to extract information or to elicit a confession was a common practice in pre-modern societies, both in the east and the west. This paper proposes a positive theory for judicial torture. It is shown that torture reflects the magistrate’s attempt to balance type I and type II errors in the decision-making, by forcing the guilty to confess with a higher probability than the innocent, and thereby decreases the type I error at the cost of the type II error. Moreover, there is a non-monotonic relationship between the superiority of torture and the informativeness of investigation: when investigation is relatively uninformative, an improvement in technology used in the investigation actually lends an advantage to torture so that torture is even more attractive to the magistrates; however, when technological progress reaches a certain threshold, the advantage of torture is weakened, so that a judicial system based on torture becomes inferior to one based on evidence. This result can explain the historical development of the judicial system.

Sequential Investments, Know-How Transmission, and Optimal Organization

In a two-stage sequential investment problem, a principal can use either a single agent or two separate agents to execute the project. The final outcome of the project depends upon both the agents investments and the first-stage outcome. The principal wishes to stop the project when the first stage is a failure; however, she may not know the first-stage outcome, so that she has to pay the agent a rent to extract that information. Furthermore, the first-stage agent can transmit his know-how to the second-stage agent. Although there is a transmission cost under separate agency while there is no cost under single agency, single agency is not always optimal. This is because the transmission cost can reduce the agents incentive to continue the project so that the information rent can be lower under separate agency. Hence, the principal may prefer separate agency more even when the transmission cost becomes larger.

Optimal Dynamic Taxation with Distinctive Forms of Social Status Attainment

We examine the role of both consumption‐ and wealth‐induced social comparisons in setting dynamic optimal income taxation. Under complete information, state‐invariant labor income taxes are used to remedy the externality caused by consumption‐induced social comparisons, while state‐contingent capital income taxes are used to remedy the externalities caused by both consumption‐ and wealth‐induced social comparisons. Under incomplete information, distinct types of agents are subject to an identical marginal capital income tax, which removes social comparisons. To solve the information problem, low‐productivity agents could be subject to a lower marginal labor tax than high‐productivity agents, which contradicts the traditional result in the Mirrlees–Stiglitz models.

Allocation of Decision-Making Authority with Principal's Reputation Concerns

This paper analyzes the allocation of decision-making authority when the principal has reputation concerns. The principal can either keep the authority and consult the agent (an expert), or delegate the authority to the agent; however, the outside evaluator cannot observe the allocation of authority. Hence, delegation can provide a way to manipulate the principals ex post reputation. In general, the principal keeps the authority too often when she has the opportunity of delegation. When the evaluator believes that the agent may make the decision sometimes, the principal has less incentive to make the right decisions