Abstracts of Rasmusen's Published Papers, November 28, 2014


To see other abstracts, go to Abstracts of my unpublished articles. To return to my homepage, go to http://www.rasmusen.org/.


  1. "Maximization Is Fine—But Based on What Assumptions?" Econ Journal Watch. 11(2): 210-218 (May 2014). The Prologue to this issue discusses how the flatness of economics leaves out aspects of reality that do not fit neatly into its formulations. I agree that much is left out, but I am not so sure methodology is to blame. Rather, the omission is caused by our restriction of economic methodology to particular assumptions about reality. In this essay, I first show that something like utility maximization has long been present in Christian theology. To be sure, economics is ‘flat’ in its style and, unlike religion, excludes by custom certain scholarly tools which would complement the flat approach. I argue, however, that the essential difference is that some religions, in particular Christianity, take their start from belief in factual assumptions that economics ignores. http://econjwatch.org/articles/maximization-is-fine-but-based-on-what-assumptions .

  2. "Preliminary Injunctions in the Obamacare Religious-Objection Lawsuits II: An Amicus Brief for Mersino v. Sebelius." (August 26, 2013) Various corporations, profit and nonprofit, have sued to be exempted from abortion-related mandates of Obamacare because of religious objections. They have also asked for preliminary injunctions against government enforcement of the offending provisions until the merits are decided. This paper is an amicus brief on the preliminary injunction issue for one of those cases, Mersino v. Sebelius. I argue for 4 points. 1. The government’s loss from a wrong injunction are limited by the dollar expenditure it would require for the government to pay for the disputed contraceptives for Mersino’s employees until the merits are decided, and it could recover even that from Mersino later. 2. In determining Mersino’s loss from a wrong injunction, the court should keep in mind that Sebelius is protected by qualified immunity from liability for a new kind of legal dispute, and so even if Mersino’s losses can be quantified, they are irreparable. 3. Other Sixth Circuit opinions involving preliminary injunctions have overlooked the fact that the 2002 6th Circuit Overstreet test has been superseded by the 2007 Supreme Court Winter test, and that the 2009 Supreme Court Nken test is for stays, in explicit contrast to preliminary injunctions. 4. The court should use a sliding-scale rule for balancing the equities. This makes a case like the present one far easier to decide. In pdf ( http://ssrn.com/abstract=2311834 ).

  3. "Preliminary Injunctions in the Obamacare Religious-Objection Lawsuits: An Amicus Brief for Hobby Lobby v. Sebelius" (July 31, 2013) Various corporations, profit and nonprofit, have sued to be exempted from abortion-related mandates of Obamacare because of religious objections. They have also asked for preliminary injunctions against government enforcement of the offending provisions until the merits are decided. This paper is an amicus brief on the preliminary injunction issue for one of those cases, Hobby Lobby v. Sebelius. I argue for 4 points. 1. The government’s loss from a wrong injunction are limited by the dollar expenditure it would require for the government to pay for the disputed contraceptives for Hobby Lobby’s employees until the merits are decided, and it could recover even that from Hobby Lobby later. 2. In determining Hobby Lobby’s loss from a wrong injunction, one thing the court should look at is how the churches of its owners, the Green family, treat members who commit acts forbidden by the church’s doctrines. 3. In determining Hobby Lobby’s loss from a wrong injunction, the court should keep in mind that Sebelius is protected by qualified immunity from liability for a new kind of legal dispute, and so even if Hobby Lobby’s losses can be quantified, they are irreparable. 4. The court should use the Posner sliding-scale rule for balancing the equities. In pdf ( http://ssrn.com/abstract=2304396 ).

  4. "The Meaning of "Value" for Gift and Estate Tax Donee Limitation in Tax Code 26 U.S.C. § 6324(B): An Amicus Brief for Marshall v. Commissioner" (August 12, 2013) In 1995, J. Howard Marshall II made a gift to Elaine Marshall worth some $43 million at the time of transfer. The IRS assessed gift tax against his estate, which failed to pay. In 2008 the IRS assessed gift tax of $74 million against donee Elaine Marshall, which exceeds $43 million because of the interest accumulated since 1995 but is less than the $81 million the gift would compound to at 5% per year. Does the limitation on donee liability to “the value” of the gift imposed by 26 U.S.C. § 6324(b) mean to “the original amount of the gift” or to “the value of the gift at the time of eventual tax payment”? In effect, that is the issue in Marshall v. Commissioner, which is now before the 5th Circuit. The SD Texas and the 11th Circuit went one way; the 3rd and 8th Circuits went the other way. This paper is an amicus brief for that case and, I hope, a good example of how economics can inform and simplify law. In pdf ( http://ssrn.com/abstract=2261914).

  5. "Are Americans More Litigious? Some Quantitative Evidence" (with J. Mark Ramseyer). An American Illness , edited by Frank Buckley, http://buckleysmix.com/american-illness-4/ Yale University Press (2013). Many observers suggest that American citizens sue more readily than citizens elsewhere, and that American judges shape society more powerfully than judges elsewhere. We examine the problems involved in exploring these questions quantitatively. The data themselves indicate that American law’s notoriety does not result from how we handle routine disputes. Instead, it results from the peculiar and dysfunctional way American courts handle particular legal doctrines like class actions. pdf ( http://www.rasmusen.org/published/litigation-ramseyer-rasmusen.pdf).

  6. "First- versus Second-Mover Advantage with Information Asymmetry about the Size of New Markets," (with Young-Ro Yoon). Journal of Industrial Economics, 60(3): 374–405 (September 2012). Is it better to move first, or second--- to innovate, or to imitate? Suppose one player has superior information about which of two new markets is better. If he enters first, he might be able to secure a natural monopoly. (The less-informed player also has this motive.) If he enters second, he can prevent the other player from imitating him. We find, predictably, that the more accurate the informed player's information the more he wants to delay in order to prevent the spillover of his information. Also, the less accurate the informed player's information the more he wants to move first in order to foreclose a market. In addition, the bigger the difference in markets, the more likely the two players will make the same choice. More surprisingly, if the informed player's information becomes more accurate that can hurt both industry profits and consumer welfare by inducing both players to choose what they hope is the bigger market, leaving the other market not served. pdf ( http://www.rasmusen.org/published/entry-rasmusen-yoon.pdf).

  7. "Internalities and Paternalism: Applying Surplus Maximization to the Various Selves across Time." Social Choice and Welfare, 38(4): 601-615 (2012). One reason to call an activity a vice and suppress it is that it reduces a person's future happiness more than it increases his present happiness. Gruber & Koszegi (2001) show how a vice tax can increase a person's welfare in a model of multiple selves with hyperbolic preferences across time. An interself analogy of the compensation criterion can justify a vice ban whether preferences are hyperbolic or exponential, but subject to the caveat that the person has a binding constraint on borrowing. In tex and pdf ( http://www.rasmusen.org/published/2012-Rasmusen-SocChoi.Welfare-internality.pdf).

  8. "Can the Treasury Exempt Companies It Owns from Taxes? The $45 Billion General Motors Loss Carryforward Rule" (with J. Mark Ramseyer), The Cato Papers on Public Policy, Vol. I, Article 1, pp. 1-54 (2011) edited by Jeffrey Miron, http://www.cato.org/store/books/cato-papers-public-policy-paperback. A corporation that buys property does not thereby acquire the right to reduce its corporate income tax by deducting the seller’s past years’ losses against its own future income. The tax code contains express provisions to rule out various complex ways of doing that, so as to prevent assets from being purchased for the sake of the net operating loss carryovers. After the government joined private parties in purchasing most of General Motors’s property, the Secretary of the Treasury issued “the EESA Notices” which said that the usual tax rules would not apply and the purchasers could deduct $45 billion from their future corporate income, a tax asset worth an estimated $16 billion. The notice gave no justification for the exception, except that the TARP act gives the Secretary authority to do what is “necessary or appropriate to carry out the purposes of EESA.” This paper argues that there is no legal or economic justification for the EESA Notices, even aside from the issue of whether the government should have bought the GM property. The scant notice paid to the large wealth transfer of the EESA Notices shows the danger of allowing this kind of tax ruling, especially in comparison to the widespread criticism of the government purchase itself, an action which may well have a much smaller cost given that the government’s previous loans to GM were already sunk. http://rasmusen.org/published/gm-ramseyer-rasmusen.doc .

  9. "Executive Compensation in Japan: Estimating Levels and Determinants from Tax Records," (with Minoru Nakazato and J. Mark Ramseyer) Journal of Economics and Management Strategy, 20 (3) 843--885 (Fall 2011). An empirical study of how CEO income varies with size, governance, and profitability of firms. ( http://rasmusen.org/published/exec/exec.htm

  10. Barnes v. Indiana, "Brief of John Wesley Hall, K. Babe Howell, Eric Rasmusen, Steven Russell, and Ronald S. Sullivan as Amici Curiae in Support of Appellant's Petition for Rehearing," Indiana Supreme Court, Case No. 82S05-1007-CR-343, (legality of resistance to illegal police entry, 2011). http://www.rasmusen.org/published/rasmusen-2011-Barnes-Amicus.doc .

  11. "The Industrial Organization of the Japanese Bar: Levels and Determinants of Attorney Income," (with Minoru Nakazato and J. Mark Ramseyer) Journal of Empirical Legal Studies, 7(3): 460--489 (September 2010). Using micro-level data on attorney incomes in 2004, we reconstruct the industrial organization of the Japanese legal services industry. These data suggest a somewhat bifurcated bar, with two sources of unusually high income: talent in Tokyo, and scarcityelsewhere. The most talented would-be lawyers (those with the highest opportunity costs) pass the bar-exam equivalent on one of their first tries or abandon the effort. If they pass, they tend to opt for careers in Tokyo that involve complex litigation and business transactions. This work places a premium on their talent, and from it they earn appropriately high incomes. The less talented face lower opportunity costs, and willingly spend many years studying for the exam. If they eventually pass, they disproportionately forego the many amenities available to professional families in Tokyo and opt instead for careers in the under-lawyered provinces. There, they earn scarcity and monopoly rents not available in the far more competitive Tokyo market. http://www.rasmusen.org/published/jpnbar.nakazato.ramseyer.rasmusen.doc.

  12. "Career Concerns and Ambiguity Aversion," Economics Letters, 108(2): 175--177 (August 2010). Why do people have ambiguity aversion, preferring, a gamble with a 50% chance of success to one whose expected probability of success is 50% but where that 50% is an unbiased estimate? The answer modelled here, in the spirit of the career concerns literature, is learning: a risk-averse person does not wish observers to learn whether he is good or bad at estimating probabilities. He therefore prefers a gamble with objective probabilities. In tex and Http://www.rasmusen.org/published/Rasmusen-10-Ec.Letters-ambiguity.pdf .

  13. "Convictions versus Conviction Rates: The Prosecutor's Choice," (with Manu Raghav and J. Mark Ramseyer). The American Law and Economics Review, 11(1): 47--78 (Spring 2009). It is natural to suppose that a prosecutor's conviction rate-- the ratio of convictions to cases prosecuted-- is a sign of his competence. Prosecutors, however, choose which cases to prosecute. If they prosecute only the strongest cases, they will have high conviction rates. Any system which pays attention to conviction rates, as opposed to the number of convictions, is liable to abuse. As a prosecutor's budget increases, he allocates it between prosecuting more cases and putting more effort into existing cases. Either can be socially desirable, depending on particular circumstances. We model the tradeoffs theoretically in two models, one of a benevolent social planner and one of a prosecutor rewarded directly for his conviction rate as well as caring about convictions and personal goals and apply the model to U.S. data drawn from county-level crime statistics and a survey of all state prosecutors by district. Conviction rates do have a small negative correlation with prosecutorial budgets, but conditioning on other variables in regression analysis, higher budgets are associated both with more prosecutions and higher conviction rates. Http://www.rasmusen.org/published/Rasmusen-09ALER-pros-published.pdf.

  14. "Public and Private Firm Compensation Compared: Evidence from Japanese Tax Returns," (with Minoru Nakazato and J. Mark Ramseyer). Korean Economic Review, 25(1): 5--34 (Summer 2009). Most studies of executive compensation focus on publicly traded companies. The high levels of compensation there are often attributed to agency slack due to ownership by diffused shareholders. If so, pay at private companies more closely held should be much lower. Governments in the United States and elsewhere do not require the pay of executives in private companies to be publicly disclosed, but until 2004 the tax office of Japan published the name and tax liability of any individual paying over about $100,000 in tax. We match this tax data with rosters of some 1,400 presidents of public and 4,100 presidents of private corporations. We find that public and private company presidents have similar incomes. Both groups earn incomes that rise with the size and profitability of the firm, but the presidents’ incomes are more sensitive to profitability at public firms than at private ones. In Japan, at least, public firms pay their presidents no more than private firms do, and tie that compensation more closely to observable performance benchmarks. http://www.rasmusen.org/papers/exec/nak-ram-rasmusen.unlisted.pdf)

  15. "The BLP Method of Demand Curve Estimation in Industrial Organization," in Japanese in Gendai Keizaigaku 1, mikuro- bunseki, edited by Isao Miura and Tohru Naito, Tokyo: Keiso shobo, 2008. ISBN: 978-4-326-50297-4. My further simplification of Nevo's simplification of BLP. In English on the web in tex and pdf (in English at http://www.rasmusen.org/published/blp-rasmusen.pdf).

  16. "When Does Extra Risk Strictly Increase the Value of Options?" The Review of Financial Studies, 20(5): 1647-1667 (September 2007). It is well known that risk increases the value of options. This paper makes that precise in a new way. The conventional theorem says that the value of an option does not fall if the underlying option becomes riskier in the conventional sense of the mean-preserving spread. This paper uses two new definitions of ``riskier'' to show that the value of an option strictly increases (a) if the underlying asset becomes ``pointwise riskier,'' and (b) only if the underlying asset becomes ``extremum riskier.'' Paper in tex or pdf ( http://www.rasmusen.org/published/Rasmusen07-RFS-options.pdf).

  17. "Norms in Law and Economics." Richard McAdams and I wrote a survey for the 2007 Handbook of Law and Economics, volume 2. Available in wordperfect and pdf ( http://www.rasmusen.org/published/Rasmusen-07-handbook.norms.pdf).

  18. Game Theory and the Law (Economic Approaches to Law series, ed. by Richard A. Posner and Francesco Parisi). Edward Elgar Publishing, 2007. The preface and contents are in PDF and Latex ( http://rasmusen.org/published/Rasmusen-07-book.lawgames.pdf)

  19. "Recruitment into Managed Courts during Political Chaos: Japan in the 1990s," (with J. Mark Ramseyer). The Journal of Comparative Economics, 35(2): 329-345 (June 2007). Because of the risk of political interference, in countries with managed courts disproportionately jurists who share ruling-party preferences self-select into judicial careers. During political turmoil, such jurists will find judicial careers less attractive. Although their more heterodox peers might otherwise take such careers in their stead, incumbents (appointed by the formerly dominant party) may exclude them. With the orthodox jurists shunning the courts and the heterodox blocked, recruitment will lag. Combining data on a random sample of 1300 Japanese lawyers and all 2100 judges hired between 1971 and 1998, we locate evidence consistent with this hypothesis. In MS Word and pdf ( http://www.rasmusen.org/published/Rasmusen-07-JCE.90sjudges.pdf).

  20. "Strategic Implications of Uncertainty over One's Own Private Value in Auctions," in the BE Press journal, Advances in Theoretical Economics, Vol. 6: No. 1, Article 7 (2006). http://www.bepress.com/bejte/advances/vol6/iss1/art7. Bidders have to decide whether and when to incur the cost of estimating their own values in auctions. This can explain sniping-- flurries of bids late in auctions with deadlines-- as the result of bidders trying to avoid stimulating other bidders into examining their bid ceiling more carefully. In ascii-latex and pdf ( http://www.rasmusen.org/published/rasmusen-06-bepress-auction.pdf).

  21. "The Case for Managed Judges: Learning from Japan after the Political Upheaval of 1993," (with J. Mark Ramseyer) University of Pennsylvania Law Review, 154(6): 1879-1930 (June 2006). Although the executive branch appoints Japanese Supreme Court justices as it does in the United States, a personnel office under the control of the Supreme Court rotates lower court Japanese judges through a variety of posts. This creates the possibility that politicians might indirectly use the postings to reward or punish judges. For forty years, the Liberal Democratic Party (LDP) controlled the legislature and appointed the Supreme Court justices who in turn controlled the careers of these lower-court judges. In 1993, it temporarily lost control. We use regression analysis to examine whether the end of the LDP's electoral lock changed the court's promotion system, and find surprisingly little change. Whether before or after 1993, the Supreme Court used the personnel office to "manage" the careers of lower court judges. The result: uniform and predictable judgments that economize on litigation costs by facilitating out-of-court settlements. Available in ms- word or pdf ( http://www.rasmusen.org/published/rasmusen-06-ramseyer-jpn1993.pdf).

  22. "The Economics of Agency Law and Contract Formation," American Law and Economics Review, 6 (2): 369-409 (Fall 2004). This article uses the economic approach to address issues that arise in agency law when agents make contracts on behalf of principals. The main issue is whether the principal should be bound when the agent makes a contract with some third party on his behalf which the principal would immediately wish to disavow. The resulting tradeoffs resemble those in tort law, so the least-cost- avoider principle is useful for deciding when contracts are valid and may be the underlying logic behind a number of different legal doctrines applied to agency cases. In particular, an efficiency explanation can be found for the undisclosed principal rule, which says that the principal is generally bound even when the third party is unaware that the agent is acting as an agent for him.
    In MS-Word and pdf (http://www.rasmusen.org/published/rasmusen-04-ALER-agency.pdf).

  23. ``Buyer-Option Contracts, Renegotiation, and the Hold-Up Problem,'' (with Thomas P. Lyon ) Journal of Law, Economics and Organization, 20,1: 148-169 (April 2004). Hart & Moore (1999) construct a model to show that contracts perform poorly when the state of the world is unverifiable and renegotiation cannot be ruled out. They implicitly assume that one player can extort payment from another by threatening to take an inefficient action which hurts both of them. Without this assumption, a simple ``buyer option" contract can implement the first- best even as complexity becomes severe. The model is a good illustration of the need to be careful with the ideas of ``one party has all the bargaining power'' and ``one party can make a take-it-or-leave-it offer.''
    In tex and pdf ( http://www.rasmusen.org/published/rasmusen-04-JLEO-incomplete.pdf)

  24. Measuring Judicial Independence: The Political Economy of Judging in Japan, University of Chicago Press, February 2003 (with J. Mark Ramseyer). A book on the Japanese judiciary based on the various articles we have written, but with new material and better presentations of many of the old regressions (we present marginal effects now in the tobits).
    The website is at ( http://rasmusen.org/published/jbook/jbook.htm).

  25. "When are Judges and Bureaucrats Left Independent? Theory and History from Imperial Japan, Postwar Japan, and the United States" (with J. Mark Ramseyer). Why is the degree and type of independence of judges in modern Japan different from that of other civil servants? In particular, why are they treated differently from judges in pre-war Japan and the United States? Why are judges given more independence than other elite public employees?
    A chapter in Measuring Judicial Independence. As a U. of Tokyo working paper. ( http://www.e.u-tokyo.ac.jp/cirje/research/dp/2001/2001cf126.pdf)

  26. "An Economic Approach to Adultery Law," Chapter 5, pp. 70-91 of Marriage and Divorce: An Economic Perspective, edited by Antony Dnes and Robert Rowthorn, Cambridge: Cambridge University Press, 2002.A long- term relationship such as marriage will not operate efficiently without sanctions for misconduct, of which adultery is one example. Traditional legal sanctions can be seen as different combinations of various features, differing in who initiates punishment, whether punishment is just a transfer or has real costs, who gets the transfer or pays the costs, whether the penalty is determined ex ante or ex post, whether spousal rights are alienable, and who is punished. Three typical sanctions, criminal penalties for adultery, the tort of alienation of affections, and the self-help remedy of justification are formally modelled. The penalties are then discussed in a variety of specific applications to past and present Indiana law. In MS-Word, , and pdf. ( http://rasmusen.org/published/Rasmusen_02.BOOK.adultery.pdf) .

  27. "Bertrand Competition Under Uncertainty" (with Maarten Janssen), Journal of Industrial Economics , 50 (1): pp. 11-21 (March 2002). Consider a Bertrand model in which each firm may be inactive with a known probability, so the number of active firms is uncertain. This simple model has a mixed-strategy equilibrium in which industry profits are positive and decline with the number of firms, the same features which make the Cournot model attractive. Unlike in a Cournot model with similar incomplete information, Bertrand profits always increase in the probability other firms are inactive. Profits do decline more sharply than in the Cournot model, and the pattern is similar to that found by Bresnahan & Reiss (1991). In tex and pdf ( http://rasmusen.org/published/Rasmusen_02.JIE.bertrand.pdf) .

  28. ``Can High Prices Ensure Product Quality When Buyers Do Not Know the Sellers' Cost?'' (with Timothy Perri) , Economic Inquiry, 39(4): 561-567 (October 2001). The Klein-Leffler (1981) model of product quality does not explain why high- quality firms would dissipate the rents they earn from quality- assuring price premia, and it relies on consumers knowing the cost functions of firms. In the present paper, consumers do not know any firm's cost of producing quality goods, so high- quality firms must engage in conspicuous spending to demonstrate they earn a profitable mark-up over cost. Complete rent dissipation occurs only when high and low cost firms have the same cost of producing low quality. In MS-WORD and PDF ( http://rasmusen.org/published/Rasmusen_01.EI.quality.pdf).

  29. "Explaining Incomplete Contracts as the Result of Contract- Reading Costs," in the BE Press journal, Advances in Economic Analysis and Policy. Vol. 1: No. 1, Article 2 (2001). http://www.bepress.com/bejeap/advances/vol1/iss1/art2. Much real- world contracting involves adding finding new clauses to add to a basic agreement, clauses which may or may not increase the welfare of both parties. The parties must decide which complications to propose, how closely to examine the other side's proposals, and whether to accept them. This suggests a reason why contracts are incomplete in the sense of lacking Pareto- improving clauses: contract- reading costs matter as much as contract- writing costs. Fine print that is cheap to write can be expensive to read carefully enough to understand the value to the reader, and especially to verify the absence of clauses artfully written to benefit the writer at the reader's expense. As a result, complicated clauses may be rejected outright even if they really do benefit both parties, and this will deter proposing such clauses in the first place.
    In tex and pdf ( http://rasmusen.org/published/Rasmusen_01.negot.pdf).

    The working paper version with the two-period model,"A Model of Negotiation, Not Bargaining: Explaining Incomplete Contracts,"is available in pdf.

  30. ``Why Are Japanese Judges so Conservative in Politically Charged Cases?'' (with J. Mark Ramseyer ), American Political Science Review, 95(2): 331- 344 (June 2001). In politically charged cases, Japanese judges routinely implement the policy preferences of the long- time ruling Liberal Democratic Party (the LDP). That Supreme Court justices defer to the LDP simply reflects the fact that they are appointed by the LDP at very a senior level. That lower court judges defer reflects -- we hypothesize that judges who defer on sensitive political questions do better in their careers. To test this, measure the quality of the assignments that some 400 judges received after deciding various categories of cases. To test the effect of a judge's decision on his job assignments, we simultaneously hold constant several proxies for effort, intelligence, seniority, and political bias. Consistently judges who defer to the LDP in politically salient disputes do better than those who do not defer. Similarly, judges who enjoin the national (but not local) government more frequently suffer in their careers. Moreover, lower- court judges do not suffer merely because the Supreme Court reverses them, which might just indicate incompetence; they suffer only if the Court reverses them in the most sensitive political cases. Data is here. In MS- Word and PDF (http://rasmusen.org/published/Rasmusen-01.APSR.jpnpub.pdf).

  31. Readings in Games and Information. Oxford: Blackwell Publishing,2001. ISBN's: 0631215573 (paperback) and 0631215565 (hardback). A collection of clippings, journal articles, and original material to accompany my game theory book. The website is at . http://www.rasmusen.org/GI/reader/gireader.htm

  32. ``Aphorisms on Writing, Talking, and Listening.'' These are notes on the mechanics of doing research in economics, a series of short, unconnected tips that I think could be widely useful both to individuals and the profession. In Readings in Games and Information, Eric Rasmusen, editor, Oxford: Blackwell Publishers, 2001. In tex or pdf (http://www.rasmusen.org/GI/reader/writing.pdf).
    See also my short version, containing the most common problems, in PDF , tex , or plain text.

  33. ``Why Is the Japanese Conviction Rate So High?'' (with J. Mark Ramseyer ), Journal of Legal Studies , January 2001) 30(1): 53-88. Conviction rates are high in Japan. Why? We suggest it is because Japanese prosecutors are understaffed. If they can afford to bring only their strongest cases, judges see only the most obviously guilty defendants, and high conviction rates would then follow. Crucially, however, Japanese judges face biased incentives. A judge who acquits a defendant runs significant risks of hurting his career and earns scant hope of positive payoffs. Using data on the careers and published opinions of 321 Japanese judges (all judges who published an opinion on a criminal case in 1976 or 1979), we find skewed incentives to convict. First, a judge who--- trying a defendant alone-- acquits the defendant will spend during the next decade an extra year and a half in branch office assignments. Second, a judge who acquits a defendant but finds the acquittal reversed on appeal will spend an extra two years in branch offices. Conversely, a judge who finds a conviction reversed incurs no substantial penalty. Unfortunately for innocent suspects, the absence of an unbiased judiciary also reduces the incentives Japanese prosecutors have to prosecute only the most obviously guilty defendants. Data is here. In pdf (http://rasmusen.org/published/Rasmusen-01.JLS.jpncon.pdf)

  34. The Uneasy Case for the Flat Tax (with F. H. Buckley), Constitutional Political Economy , (December 2000) (lead article) 11(4): 295-318. There is a secret paradox at the heart of social contract theories. Such theories assume that, because personal security and private property are at risk in a state of nature, subjects will agree to grant Leviathan a monopoly of violence. But what is to prevent Leviathan from turning on his subjects once they have lain down their arms? If Leviathan has the same incentives as his subjects in the Hobbesian state of nature, he will plunder them more thoroughly than ever they plundered themselves in the state of nature. Thus the social contract always leaves subjects worse off, unless Leviathan can fetter himself. And how can Leviathan bind himself, if he can always impose confiscatory taxes or choke off trade through inefficient regulations? This article suggests that schemes of progressive taxation, in which marginal tax rates increase with taxable income, may be seen as a useful incentive strategy to bribe Leviathan from imposing inefficient regulations. Income taxes give Leviathan an equity claim in his state's economy, and progressive taxes give him a greater residual interest in upside payoffs. Leviathan will then demand a higher side payment from interest groups to impose value-destroying regulations. Of course, progressive taxation imposes its own incentive costs, by reducing the subject's private gains. However, these costs must be balanced against the gains from correcting Leviathan's misincentives, and it may that such gains exceed the costs of progressive taxation. In Ascii txt and pdf ( http://rasmusen.org/published/Rasmusen_00.CPE.king.pdf)

  35. Games and Information, Third Edition. Website at Http://www.rasmusen.org/GI/index.html. Games and Information , Oxford: Blackwell Publishers. First edition, 1989. 344 pp., ISBN: 0-631-15709-3. Second edition, 1994, 478 pp., ISBN: 1-55786-502-7. Third Edition, ISBN: 0631210954, 2001.

    Japanese translation by Moriki Hosoe, , Shozo Murata, and Yoshinobu Arisada, Kyushu University Press, Vol. I (1990), Vol. 2 (1991). Italian translation ( Teoria dei Giochi e Informazione ) by Alberto Bernardo, Milan: Ulrico Hoepli Editore (1993), ISBN: 8820320231. Spanish translation ( Juegos e Informacion ) by Roberto Mazzoni, Mexico City: Fondo de Cultura Economica (1997). Korean rights sold to United Consulting Group Limited. French rights sold to < A HREF= "http://www.deboeck.be/dbu/catalog/index.html"> Editions de Boeck & Larcier. Chinese rights were sold to Sanlian Press, and a translation is being prepared by Yang Yao (CCER, Beijing University http://ccer.pku.edu.cn/en/eyyao.htm). I have various materials available associated with the book-- errata, teaching aids, etc. at the website.

  36. "Review of Economic Games and Strategic Behavior, by Frank Stahler," Zeitschrift fur die gesamte Staatswissenschaft (Journal of Institutional and Theoretical Economics [JITE] ), 71: 322-324. A review of a 1998 book on repeated games. In Ascii txt and pdf ( pacioli/published/Rasmusen_00.JITE.stahler.pdf).

  37. "Oil in Sudan," a South Sudanese Friends International report, June 2000. In Ascii txt-HTML ( http://rasmusen.org/published/Rasmusen_00.sudan.oil.htm). A web report on oil drilling in south Sudan, with attention to the ethical implications for the foreign companies there.

  38. "Naked Exclusion: A Reply" (with J. Mark Ramseyer and John Wiley), American Economic Review , March 2000. Our one- page reply to Whinston and Siegal's forthcoming AER article correcting and elaborating our 1991 AER article. In Ascii txt and pdf ( http://rasmusen.org/published/Rasmusen_00.AER.exclusion.pdf) .

  39. ``Skewed Incentives: Paying for Politics as a Japanese Judge, '' (with J. Mark Ramseyer) . A nontechnical survey of our work on Japanese courts for the practitioner journal, Judicature, 83: 190- 195 (January/February 2000) (cover article). In Ascii txt and pdf ( http://rasmusen.org/published/Rasmusen_00.judicat.pdf).

  40. "Why the Japanese Taxpayer Always Loses,"(with J. Mark Ramseyer ), Southern California Law Review, 72: 571-596 (January/March 1999). Translated and reprinted, Doshite Nihon no nozeisha wa katenai no ka [Why Can’t Japanese Taxpayers Win?], in Kohogaku no ho to seisaku: ge [Law and Policy in Public Law: vol. 2] 147 (Mitsuaki Usui, et al., eds., Tokyo: Yuhikaku, 2000). The tax office wins most cases in Japan. We think about why this might be. We find that although judges who rule in favor of the taxpayer do not suffer in their future careers, if the loser-- whether governemnt or taxpayer-- appeals and wins, the reversed judge's career does take a turn for the worse. This implies that the government cares more about accurate judging than about pro-government judging. Data is here. In Ascii txt , and pdf ( http://rasmusen.org/published/Rasmusen-99.SCLR.jpntax.pdf).

  41. "Creating and Enforcing Norms, with Special Reference to Sanctions," (with Richard Posner), International Review of Law and Economics, > 19(3): 369- 382 (September 1999). Two central puzzles about social norms are how they are enforced and how they are created or modified. The sanctions for violation of a norm can be categorized as automatic, guilt, shame, informational, bilateral- costly, and multilateral-costly. Problems in creating and enforcing norms are related to which sanctions are employed. We use our analysis of enforcement and creation of norms to analyze the scope of feasible government action either to promote desirable norms or to repress undesirable ones. In Ascii txt and pdf ( http://rasmusen.org/published/Rasmusen_99.IRLE.norms.pdf).

  42. ``Review of Coasean Economics: Law and Economics and the New Institutional Economics edited by Steven Medema,'' Journal of Economic Literature, 36: 2171-2174 (December 1998). A book review which talks about what kinds of papers I'd like to see written. In tex or pdf ( http://rasmusen.org/published/Rasmusen_98.JEL.coase.pdf ).

  43. ``The Observed Choice Problem in Estimating the Cost of Policies, '' Economics Letters (1998) 61(1): 13-15. A very short version of my Public Choice paper which makes the basic point that OLS estimation of the costs of deliberately chosen policies will be biased downwards. In tex or pdf (http://rasmusen.org/published/Rasmusen_98.EC_LET.mchoice.pdf ).

  44. ``Observed Choice, Estimation, and Optimism about Policy Changes, '' Public Choice, (October 1998) 97(1-2): 65- 91. A policy will be used more heavily in a particular time and place where its marginal cost is lower. The analyst who treats times and places as identical will overestimate the policy's net benefit, especially for policy intensities greater than exist in his sample. In regression analysis, the problem can be solved by instrumental variables and a correction for heteroskedasticity. In an example using state- level data, the technique substantially increases the estimated responsiveness of the illegitimacy rate to transfer payments. In tex or pdf ( http://rasmusen.org/published/Rasmusen_98.PUB_CHOICE.choice.pdf). There is a mistake in one of the explanations, which I point out in some notes that also discuss estimation of intercepts. The state-level data on illegitimacy, Dukakis votes, AFDC, and other correlates is available.

  45. "A Theory of Trustees, and Other Thoughts," in Public Debt and its Finance in a Model of a Macroeconomic Policy Game: Papers Presented at a Workshop held in Antalya, Turkey on October 10- 11, 1997, , ed. by Tahire Akder. This paper combined a brief description of my work on negotiation with comments on other papers presented on central banking and a new paradigm for thinking of judges and central bankers as trustees working on behalf of beneficiaries as directed by settlors. It has my 4 P's Theory of motivation: Place, Pride, Policy, and Power. Available, including a post- publication postscript adding Principle, in Ascii-latex or pdf( http://rasmusen.org/published/Rasmusen_98.BOOK.trustees.NEW.pdf).
    See also my notes for a new paper based on this, in Ascii-latex or pdf(http://rasmusen.org/papers/trustees-rasmusen.pdf) and the discussion in Measuring Judicial Independence.

  46. "Nuisance Suits," The New Palgrave Dictionary of Economics and the Law , London: Macmillan Press,Peter Newman, editor, ISBN 1-56159-2153, May 1998. Nuisance suits can be defined a number of ways, explained a number of ways, and prevented in a number of ways. I survey them. In tex or pdf ( http://rasmusen.org/published/Rasmusen_98.BOOK.nuisance.pdf).

  47. "The Economics of Desecration: Flag Burning and Related Activities." Journal of Legal Studies (June 1998) 27(2): 245- 270 (lead article). When a symbol is desecrated, the desecrator obtains benefits while those who venerate the symbol incur costs. The approach to policy used in this paper is to ask whether the benefits are likely to exceed the costs. I conclude that they usually do not. Desecration is often motivated by a desire to reduce the utility of others, which generally is inefficient. Also, if desecration occurs, people have less incentive to create and maintain symbols. Symbols, like other produced goods, need property- rights protection if the outcome is to be efficient. Laws against desecration are a good way to provide this protection, given the likely failure of the Coase Theorem and the possibility of efficient breaking of the laws. In tex or pdf ( http://rasmusen.org/published/Rasmusen_98JLS.flag.pdf).

  48. "From Miranda to Mezzanatto: The Economics of Self Incrimination," Cardozo Law Review (May 1998) 19: 1541-1584. A 1995 Supreme Court decision allowed defendants in criminal trials to waive their rights to block use of information disclosed by them during the plea bargaining process. Does this really encourage plea bargaining? In Latex-Ascii ) or pdf ( http://rasmusen.org/published/Rasmusen_98CARDOZO.mezz.pdf).

  49. "Lifting the Veil of Ignorance: Personalizing the Marriage Contract," (with Jeffrey Stake) Indiana Law Journal (Spring 1998) 73: 454-502. Modern state laws only allow marriages in which each party can unilaterally divorce the other. We argue that the law should clearly permit parties to contract for more restrictive forms of marriage. In Ascii tex , or pdf ( http://rasmusen.org/published/Rasmusen_98.ILJ.marriage.pdf).

  50. ``Review of Timur Kuran, Private Truths, Public Lies: The Social Consequences of Preference Falsification''. Journal of Economic Behavior and Organization (1998) 33: 309-311. A review of a book on what happens when people's statement of their information depends on what other people are saying. In Ascii tex or pdf ( http://rasmusen.org/published/Rasmusen_98.JEBO.kuran.pdf).

  51. ``Of Sex and Drugs and Rock'n Roll: Law and Economics and Social Regulation,'' Harvard Journal of Law and Public Policy 21: 71-81 (Fall 1997). Economists tend to be libertarians, because laissez faire is indeed the efficient policy in most monetized interactions, though there are well- known exceptions because of such things as poor information and externalities. Although the economic approach is also perfectly appropriate for non-monetized social interactions such as marriage or politics, the policy presumption does not follow. The reason such markets are non- monetized is that such things as poor information and externalities are the norm, not the exception. This means that laissez faire is not a safe default prescription for social regulation. In Ascii txt or Html ( http://rasmusen.org/published/Rasmusen_97.HJLPP.Feder.htm).

  52. "Judicial Independence in Civil Law Regimes: Econometrics from Japan," (with J. Mark Ramseyer ), Journal of Law, Economics, and Organization (1997) 13: 259-286 (lead article). Translated and reprinted, Nihon ni okeru shiho no dokuritsu wo kensho suru [Examining Judicial Independence in Japan], Rebaiasan [Leviathan: The Japanese Journal of Political Science] (1998) 22: 116-149 (scanned here). Judges in Japan cannot be fired if their decisions offend the government, but they follow a career path in which the location and type of positions they hold may be subject to political influence. We have obtained a comprehensive record of career assignments for judges educated after the Second World War. We couple data on judicial output (the quantity and nature of a judge's opinions) with these career records. We examine judges who began their careers 1961-65, focussing on the Class of 1965, for whom we have determined the number of pro- and anti- government decisions. If the promotion process is politicized, the marginal impact of individual politically deviant cases will decline over the course of a judge's career, since the political opinions of older judges have already become clear to the administration. This does seem to be the case in our logit regressions. Data is here. In tex and pdf ( http://rasmusen.org/published/Rasmusen_97.JLEO.japan.pdf).

  53. Review Discussion: Game Theory and the Law (with Kenneth Dau- Schmidt, Michael Alexeev, Jeff Stake, and Bob Heidt), Law and Society Review . Our dialogue- form review of the 1994 book by Douglas Baird, Robert Gertner \& Randall Picker. Law and Society Review, 31: 613-629 (1997). In Ascii txt- HTML or pdf ( http://rasmusen.org/published/Rasmusen_97.LSR.baird.pdf).

  54. The Learning Curve in a Competitive Industry. (with Emmanuel Petrakis, and Santanu Roy), The RAND Journal of Economics (Summer 1997) 28: 248-268. We consider the learning curve in an industry with free entry and exit, and price- taking firms. A unique equilibrium exists if the fixed or entry cost is positive. While equilibrium profits are zero, mature firms earn rents on their learning, and no firm can profitably enter after the date the industry begins. However, under some cost and demand conditions, firms may have to exit the market despite their experience gained earlier. Furthermore, in an equilibrium with exit, identical firms facing the same prices produce different quantities. Industry concentration need not increase in the intensity of learning. The market outcome is always socially efficient, even if it dictates that firms exit after learning. Finally, a perfectly competitive market might sustain firms having different costs and different learning capabilities. Available in tex or pdf ( http://rasmusen.org/published/Rasmusen_97RJE.learning.pdf). Proofs available in tex or pdf .

  55. "Choosing Among Signalling Equilibria in Lobbying Games," Public Choice (April 1997) 91: 209-214. Randolph Sloof has written a comment on the lobbying-as-signalling model in Rasmusen (1993) in which he points out an equilibrium I missed and criticizes my emphasis on a particular separating equilibrium. In this response, I discuss how to interpret multiple equilibria in games and how to interpret mixed strategy equilibria in which two types of player with identical incentives must pick different mixing probabilities In Ascii- Latex or pdf (http://rasmusen.org/published/Rasmusen_97PUB_CHO.sloof.pdf).

  56. Signal Jamming and Limit Pricing: A Unified Approach, in Public Policy and Economic Analysis , Moriki Hosoe and Eric Rasmusen, editors, Fukuoka, Japan: Kyushu University Press, 1997. In signal jamming, an rival uses observed profits to predict profitability, but those profits can be manipulated by a rival firm. In the present model, the size of the market is known to the incumbent, who is one of two firms that might occupy it. The potential rival observes profits, which can be manipulated by the incumbent. Depending on the monopoly premium and the prior probability that the market is large, the equilibrium may be pooling in pure or mixed strategies, or separating, which are similar to the signal- jamming and signalling equilibria of Fudenberg \& Tirole (1986) and Milgrom \& Roberts (1982) respectively. In contrast to the common result that strategic behavior encourages innovation even though it introduces current distortions, in this model the possibility of strategic behavior can either encourage or discourage entry into markets as yet unserved by any firm. In tex (59K) or pdf ( http://rasmusen.org/published/Rasmusen_97BOOK.jamming.pdf).

  57. Public Policy and Economic Analysis, Moriki Hosoe and Eric Rasmusen, editors, Fukuoka, Japan: Kyushu University Press, 1997. A conference volume from the 1994 micro theory conference in Fukuoka.

  58. "The Posner Argument for Transferring Health Spending from Old Women to Old Men," Economics Letters 53: 337- 339 (December 1996). Richard Posner suggests several arguments for increasing health care spending on males and reducing it on females in his book Aging and Old Age. I offer a new formalization of his verbal argument. In tex (6K) or pdf ( http://rasmusen.org/published/Rasmusen_96EL.oldman.pdf)

  59. Stigma and Self-Fulfilling Expectations of Criminality , Journal of Law and Economics 39: 519-544 (October 1996). In modelling crime, economists have focussed on the expected cost of government sanctions to the criminal, but private sanctions--- notably economic or social stigma--- may be just as important. In the model here, workers decide whether to commit crimes and employers decide how much to pay ex- convicts. In one equilibrium, individuals refrain from crime and economic stigma--- the wage loss from conviction--- is high. In a second, pareto- inferior equilibrium, individuals commit crimes and stigma is low, because employers realize that nonconviction does not imply noncriminality. The model may help to explain large shifts in crime, such as that between 1960 and 1980, in which decreases and increases in government sanctions seem to have asymmetric effects. In tex (75K) or pdf ( http://rasmusen.org/published/Rasmusen_96JLE.stigma.pdf).

  60. Review of COMPETITION, COMMITMENT, AND WELFARE by Kotaro Suzumura , Journal of Economic Literature 34: 1374-1376 (September 1996). A short review of a book on oligopoly theory. In Ascii txt or pdf ( http://rasmusen.org/published/Rasmusen_96JEL.suzumura.pdf).

  61. ``Review of Game Theory and the Social Contract: Volume 1, Playing Fair by Ken Binmore, '' Journal of Economic Literature , (December 1995) 33: 1979-80. A review of Binmore's book using game theory in setting up foundations for constitutional theory. Available in Ascii txt (6K) or pdf ( http://rasmusen.org/published/Rasmusen_95JEL.binmore.pdf).

  62. ``Predictable and Unpredictable Error in Tort Awards: The Effect of Plaintiff Self Selection and Signalling,'' International Review of Law and Economics (September 1995) 15: 323-345. If a tort plaintiff can predict that the court will overestimate damages he is more likely to bring a case, but if the court is aware of this, it may wish to adjust its awards accordingly. In general, court error implies that the court should adjust for regression to the mean, moderating extreme awards whether they be high or low. Predictable error, however, tends to make a downwards adjustment optimal and unpredictable error an upwards adjustment, because of plaintiff selection and signalling. In tex (81K) or pdf ( http://rasmusen.org/published/Rasmusen_95IRLE.error.pdf).

  63. ``How Optimal Penalties Change with the Amount of Harm,'' International Review of Law and Economics (1995) 15: 101-108. Intuition tells us that the optimal penalty and court care should rise smoothly with the harm to the victim. A formal model is constructed to see if this intuition can be justified, but it appears not to be generally true: sometimes the optimal penalty and court care increase discontinuously with harm, even under reasonable assumptions on the relationship between the penalty and the amount of crime. One reason why criminal penalties are not maximal is that even if they are fines, without real costs, the efficient level of court care will still allow them to sometimes be mistakenly inflicted on the innocent. In Ascii Latex or pdf( http://rasmusen.org/published/Rasmusen_95IRLE.penalty.pdf).

  64. Games and Information: An Introduction to Game Theory, Second Edition. Cambridge, Mass: Blackwell Publishing, 1994. This is a genuinely new edition, expanding the book from 352 to 478 pages. New features include problem sets with detailed answers and sections on the Kyle model, signal jamming, supermodularity, government procurement, litigation games, and other topics.

  65. ``Judicial Legitimacy: An Interpretation as a Repeated Game, '' Journal of Law, Economics, and Organization (April 1994) 10: 63- 83. If society wishes to maintain an independent judiciary, it faces the problem of how to restrain judges from indulging their personal whims. One restraint is the desire of judges to influence future judges. To do so, they may have to maintain their own or the system's legitimacy by restraining their own behavior. This situation is usefully viewed as an equilibrium of an infinitely repeated game. In Ascii-Latex (73K) or pdf ( http://rasmusen.org/published/Rasmusen_94JLEO.judges.pdf).

  66. "Cheap Bribes and the Corruption Ban: A Coordination Game among Rational Legislators," Public Choice (1994) 78: 305-327 (with J. Mark Ramseyer ). Reprinted, The Economics of Corruption and Illegal Markets (Gianluca Fiorentini & Stefano Zamagni, eds.: Edward Elgar, 1999). Legislators in modern democracies (a) accept bribes that are small compared to value of the statutes they pass and (b) allow bans against bribery to be enforced. In our model of bribery, rational legislators accept bribes smaller not only than the benefit the briber receives but than the costs the legislators incur in accepting the bribes. Rather than risk this outcome, the legislators may be willing to suppress bribery altogether. The size of legislatures, the quality of voter information, the nature of party organization, and the structure of committees will all influence the frequency and size of bribes. In Ascii- Latex (73K) or pdf ( http://rasmusen.org/published/Rasmusen_94PUBCHO.bribes.pdf).

  67. ``Mutual versus Unilateral Mistake in Contracts,'' Journal of Legal Studies (June 1993), 22:309-343 (with Ian Ayres). Courts sometimes allow contracts to be voidable because of mistakes in their basic assumptions. The common wisdom is that rescission is more likely to be granted if the mistake is mutual rather than unilateral---an incorrect belief common to both parties, not just to one. Rescission for mistake can be justified as a way to avoid inefficient transactions and to reduce the costs of collecting information on whether a mistake has been made. These reasons do not justify a general rule distinguishing between mutual and unilateral mistake. In Ascii txt (110K) or pdf ( http://rasmusen.org/published/Rasmusen_93JLS.mistake.pdf).

  68. ``Lobbying when the Decisionmaker Can Acquire Independent Information,'' Public Choice (1993) 77: 899-913. Politicians trade off the cost of acquiring and processing information against the benefit of being re-elected. Lobbyists and protesters may possess private information upon which politicians would like to rely without the effort of verification. If the politician does not try to verify, however, the lobbyist or protester has no incentive to be truthful. This is modelled as a game in which the lobbyist lobbies to show his conviction that the electorate is on his side. In equilibrium, sometimes the politician investigates, and sometimes the information is false. The lobbyists and the electorate benefit from the possibility of lobbying when the politician would otherwise vote in ignorance, but not when he would otherwise acquire his own information. The politician benefits in either case. Lobbying is most socially useful when the politician's investigation costs are high, when he is more certain of the electorate's views, and when the issue is less important. Similarly, a protester going to the trouble of holding a protest also may be truthfully indicating that investigation would show his side to be right or may be bluffing. In tex (43K) or pdf ( http://rasmusen.org/published/Rasmusen_93PUBCHO.lobbying.pdf ).

  69. ``Heterogeneous Players and Specialized Models,'' Rationality and Society (January 1992) 4: 83- 94. Game theory has been criticized as neglecting key aspects of individual behavior and as relying too heavily on special assumptions. It can, in fact, handle individual heterogeneity if the modeler is willing to carefully specify how people are different, but to the extent that such things as heterogeneity and culture are important, the desire for a single unified model is impossible to satisfy. At the same time, game theory's approach is very useful for building specialized models. In tex (29K) or pdf ( http://rasmusen.org/published/Rasmusen_92RATSOC.games.pdf). .

  70. ``The Strategy of Sovereign Debt Renegotiations,'' The Handbook of Country Risk Analysis , edited by Ronald Solberg. London: Routledge Press, 1992. ISBN: 0-415-07855-5. The standard economic theory of perfect competition assumes that there are many buyers and many sellers, all possessing the same information, so that no one can act strategically. This standard theory is clearly not appropriate for analyzing debt renegotiation, where buyer and seller are bound to deal with each other and information is asymmetric. Game theory is a set of techniques developed to analyze economic situations that, like games, involve few players and strategic behavior. This theory has been greatly developed in the past fifteen years, and is useful for understanding some of the paradoxes of debt regenotiation. In tex (58K) or pdf ( http://rasmusen.org/published/Rasmusen_92BOOK.debt.pdf) .

  71. ``Game Theory in Finance,'' The New Palgrave Dictionary of Money and Finance , edited by John Eatwell, Murray Milgate, and Peter Newman. New York: Stockton Press, 1992. A short survey of the use of game theory in finance. In tex (13K) or pdf (http://rasmusen.org/published/Rasmusen_92PALGRAVE.finance.pdf).

  72. ``Defining the Mean-Preserving Spread: 3-pt versus 4-pt,'' Decision Making Under Risk and Uncertainty: New Models and Empirical Findings , edited by John Geweke. Amsterdam: Kluwer, 1992 (with Emmanuel Petrakis ). ISBN: 0-7923-1904-4. The standard way to define a mean-preserving spread is in terms of changes in the probability at four points of a distribution (Rothschild and Stiglitz [1970]). Our alternative definition is in terms of changes in the probability at just three points. Any 4-pt mean- preserving spread can be constructed from two 3-pt mean-preserving spreads, and any 3-pt mean-preserving spread can be constructed from two 4-pt mean- preserving spreads. The 3-pt definition is simpler and more often applicable. It also permits easy rectification of a mistake in the Rothschild-Stiglitz proof that adding a mean- preserving spread is equivalent to other measures of increasing risk. In tex (13K) or pdf (http://rasmusen.org/published/Rasmusen_92BOOK.mps.pdf) .

  73. ``Are Equilibrium Strategies Unaffected by Incentives?'' Journal of Theoretical Politics , (July 1992), 4: 343-357 (with Jack Hirshleifer). Tsebelis proposed that in games such as the"Police Game"that have only a mixed strategy equilibrium, changing a player's payoff parameters will not affect his behavior. Care must be taken not to push this reasoning too far. In pdf (http://rasmusen.org/published/hirshleifer-rasmusen.92.jtp.mixed.pdf) .

  74. ``Managerial Conservatism and Rational Information Acquisition, '' Journal of Economics and Management Strategy (Spring 1992), 1(1): 175-202. Conservative managerial behavior can be rational and profit- maximizing. If the valuation of innovations contains white noise and the status quo would be preferred to random innovation, then any innovation that does not appear to be substantially better than the status quo should be rejected. The more successful the firm, the higher the threshold for accepting innovation should be, and the greater the conservative bias. Other things equal, more successful firms will spend less on research, adopt fewer innovations, and be less likely to advance the industry 's best practice. In Ascii txt-Latex (76K) or pdf ( http://rasmusen.org/published/Rasmusen_92JEMS.conservatism.pdf).

  75. ``An Income-Satiation Model of Efficiency Wages,'' Economic Inquiry (July 1992) 30(3): 467- 478. Efficiency wages are wages that exceed a worker's reservation wage. A standard explanation for such wages is ``bonding'': by increasing the worker's fear of discharge, high wages increase the worker's cost from punishment. A neglected alternative is ``satiation'': by decreasing the worker's marginal utility of income, the high wage decreases the benefit from misbehavior. Satiation, unlike bonding, applies even in a one- period model, but it relies on the misbehavior having a monetary benefit and on at least part of the punishment being nonmonetary. In Ascii txt-Latex (45K) or pdf ( http://rasmusen.org/published/Rasmusen_92ECINQ.effwages.pdf) .

  76. ``Folk Theorems for the Observable Implications of Repeated Games,'' Theory and Decision (March 1992), 32: 147-164. The fact that infinitely repeated games have many different equilibrium outcomes is known as the Folk Theorem. Previous versions of the Folk Theorem have characterized only the pavoffs of the game. This paper shows that over a finite portion of an infinitely repeated game, the concept of perfect equilibrium imposes virtually no restrictions on observable behavior. The Prisoner 's Dilemma is presented as an example and discussed in detail. In pdf ( Rasmusen.92THEDEC.folk.pdf).

  77. ``Naked Exclusion,'' American Economic Review (December 1991) 81: 1137-1145 (with J. Mark Ramseyer and John Wiley ). Exclusive- dealing contracts can be part of rational entry deterrence if there is even a small positive minimum efficient scale. The excluder can get the other side of the market to agree to his exclusive contract without a side payment if they believe all others will sign too, and so the excluder's rivals will cease to exist. In HTML/Ascii txt (*.htm, pacioli/published/Rasmusen_91.AER.exclusion.htm) or pdf( http://rasmusen.org/published/Rasmusen_91AER.exclusion.pdf). See also our reply to a comment/extension/correction by Siegel and Whinston (AER, March 1990: 90: 310-311) and longer comments (ascii)

  78. ``Recent Developments in the Economics of Exclusionary Contracts, '' Chapter 16 (pp. 371-388), Canadian Competition Law and Politics at the Centenary , edited by R. Khemani and W. Stanbury. Halifax: The Institute for Research on Public Policy, 1991. A short survey of ideas on exclusive-dealing contracts. In pdf ( http://rasmusen.org/published/rasmusen-91recent-developments.pdf).

  79. ``Diseconomies of Scale in Employment Contracts,'' Journal of Law, Economics and Organization (June 1990), 6(1): 65-92 (with Todd Zenger). We find that small teams can write more efficient incentive contracts than large teams when agents choose individual effort levels but the principal observes only the joint output. This result is helpful in understanding organizational diseconomies of scale and is consistent with both existing evidence and our own analysis of data from the Current Population Survey. Our modelling approach, similar to classical hypothesis testing, is of interest because we need not derive the optimal contract to show the advantage of small teams. In tex or pdf ( http://rasmusen.org/published/Rasmusen_90.JLEO.teams.pdf).

  80. ``The Leasing Monopolist,'' UCLA Law Review (April 1990), 37: 693-732 (with J. Mark Ramseyer and John Wiley). The United Shoe case banned lease-only policies by monopolists. But the court erred in believing that monopoly pricing could explain United Shoe Machinery's complex of leasing policies. At best, this explanation only accounts for a few details of the case. The bulk of the company's conduct seems simply efficient -- suggesting that the Shoe decision was wrong and its later precedential consequences pernicious. The Coase Conjecture might seem to make some sense of Shoe's ban on monopoly leasing, and suggests that the Shoe rule may have been too narrow. At the same time, however, the Conjecture dictates that the Shoe rule be confined ways the opinion did not suggest that are unacceptably costly to accomplish. Courts would do well to accept that Coase describes a problem that is real. But they would also do well to accept it as a problem not worth solving. In HTML-Ascii txt (http://rasmusen.org/published/Rasmusen_90.UCLA.L.R.leasing.htm).

  81. ``Extending the Economic Theory of Regulation: The Form of Policy, '' Public Choice (1991), 72: 167-191 (with Mark Zupan). The mutually beneficial connection between industries and the governments that regulate them is the subject of a large literature led by Stigler (1971). What has not been studied is how firms choose their desired policies from the set including entry barriers, price floors, subsidies, and demand stimulation. We take as given that government and incumbents form the supply and demand for regulation and explore the choice of political product. In Ascii- Latex (67K) or pdf ( http://rasmusen.org/published/Rasmusen_91PUBCHO.regulation.pdf).

  82. ``Cooperation in a Repeated Prisoner's Dilemma with Ostracism, '' Journal of Economic Behavior and Organization (August 1989), 12: 87-106 (with David Hirshleifer). The unique Nash equilibrium of the finitely repeated n-person Prisoners' Dilemma calls for defection in all rounds. One way to enforce cooperation in groups is ostracism: players who defect are expelled. If the group's members prefer not to diminish its size, ostracism hurts the legitimate members of the group as well as the outcast, putting the credibility of the threat in doubt. Nonetheless, we show that ostracism can be effective in promoting cooperation with either finite or infinite rounds of play. The model can be applied to games other than the Prisoners' Dilemma, and ostracism can enforce inefficient as well as efficient outcomes. In tex (60K) or pdf ( http://rasmusen.org/published/Rasmusen_89JEBO.ostracism.pdf) .

  83. ``Antitrust and Spatial Predation: A Response to Thomas J. Campbell,'' Columbia Law Review (June 1989), 1989: 1015-32 (with John Wiley). In a 1987 article, Thomas Campbell argues that predation can be a credible threat in spatial markets. We contest this view. In HTML ( http://rasmusen.org/published/Rasmusen_89.COLUMBIA.L.R.location.htm).

  84. ``A Simple Model of Product Quality with Elastic Demand,'' Economics Letters, 29(4): 281-283 (1989). Klein and Leffler (1981) construct a model in which expected future prices exceed marginal cost so that sellers are willing to maintain high quality for the sake of future profits. How profits are dissipated under free entry, and whether there is a continuum of equilibria, are questions not fully resolved. I construct a formal model simpler than any now existing in which free entry and exogenous fixed costs uniquely determine the price of output and the amount sold per firm. In tex (21K) or pdf ( http://rasmusen.org/published/Rasmusen_89ECLET.quality.pdf) .

  85. "Entry for Buyout," Journal of Industrial Economics (March 1988), 36: 281-300. Entry into a monopolized industry may be profitable if the entrant is bought out even if it would be unprofitable to enter for continuing operation. The stronger is duopoly competition, the greater is the incentive for buyout, so an incumbent's toughness in produce-market competition may be his own undoing. Evidence from the 1890's shows examples of entry for buyout. In pdf ( http://rasmusen.org/published/Rasmusen_88.JIE.buyout.pdf) .

  86. ``Stock Banks and Mutual Banks,'' Journal of Law and Economics, 31: 395--422 (October 1988). Reprinted in Banking Law Anthology , Volume IV (1988), Bethesda, Md: International Library. Because mutual banks do not allow shareholders to discipline bad managers and so have higher costs, they have been disappearing since bank entry deregulation in the 1980's. They were common before regulation in the 1930's, and are more common in the 19th century. I propose that this is because of the absence of deposit insurance. Depositors wanted safety more than low operating costs, and a mutual manager, in a cushy job he could not lose except by bankrupting his firm, would also value safety. In tex (78K) or pdf (http://rasmusen.org/published/Rasmusen_88JLEC.mutual.pdf).

  87. "Moral Hazard in Risk-Averse Teams," RAND Journal of Economics, 18: 428--435 (Fall 1987). Holmstrom (1982) has shown that a non-budget- balancing contract induces a team of risk-neutral agents to choose the first- best effort levels. This is not generally true when agents are risk averse. Furthermore, a "massacre" contract, which punishes all but one agent when the outcome is low, can attain the first best over a wider range of parameters than any other budget-balancing contract. In Ascii latex.(http://rasmusen.org/published/Rasmusen_87RJE.teams.txt) .


URL: http://rasmusen.org/pubabs.htm. Indiana University, Department of Business Economics and Public Policy, in the Kelley School of Business , BU 456, 1309 East Tenth Street, Bloomington, Indiana 47405-1701, (812)855- 9219. Comments: Erasmuse@Indiana.edu.

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