### Rasmusen's Unpublished Papers (September 30, 2020)

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

### 2. Working Papers and projects

2. "Ostracism in Japan" with J. Mark Ramseyer. Group ostracize members. Sometimes they do it to enforce welfare-maximizing norms, but other times ostracism reduces welfare. Japanese villages have long used ostracism as a tool for conformity, and the targets have sometimes sued in response. The cases that have reached the courts disproportionately involve welfare-reducing behavior by the community; for example, ostracism against targets who report corruption. The targets usually win the civil cases against ostracizers and prosecutors usually win the criminal cases. Yet the targets seem not to have sued for financial or injunctive relief, and the prosecutors seem not to have pushed for prison terms. Instead, they have used the courts for an informational end: to certify and publicize innocence. This end is of minor importance in normal litigation, but crucial fo ostracism, as we explain using a formal model. We use case examples and the model to explore the factors that cause disputes to lead to ostracism and ostracisms to lead to litigation. http://www.rasmusen.org/papers/ostracism.pdf.

"How Covid-19 Infects Our Brains: The Idols of the Forum," http://www.rasmusen.org/papers/4idols-forum600.docx.

"The Political Economy of Epidemic Control: Fixing the CDC," (with J. Mark Ramseyer) http://www.rasmusen.org/papers/cdc.doc.

3. "Disgorgement in Defamation Suits." If a defamer profits financially from his lies, the victim should be awarded those profits. This has profound implications for cases such as Nick Sandmann's against the TV networks. I will do a doctrinal and a law-and-economic analysis and discuss fine points such as discovery, pleading, and damage computation for common law countries. No draft ready yet.

4. "Using Agency Theory To Understand Procedure: Mandamus, En Banc, and Rule 48 Dismissal As Controls for Rogue Judges and Prosecutors." Principal-agent theory makes sense of many confused topics in civil and criminal procedure, and is potentially very useful to courts trying to puzzle over incoherent caselaw tests. I use the case of In re Flynn as an example. This paper will take off from my amicus brief in the panel mandamus proceeding and my pseudo-brief that expands the amicus for the en banc proceeding.

5. "Writing, Reading, and Speaking in the Age of the Internet." I am revising my old book chapter, "Aphorisms on Writing, Speaking, and Listening," into a short book, with special emphasis on how the Internet is changing what we do in economics. I have notes on my blog at "Aphorisms on Writing, Talking, Listening in the Internet Age" and "Tips for Online Seminars".

6. “Why Firms Reduce Business Risk Revisited: Projects with Risky Cash Flows Are Harder To Evaluate? Firms seem to care a lot about risk management'': the practice of hedging risks whether they are correlated with market risk or not. The standard reasons why widely held corporations might be averse to idiosyncratic risk are based on the principal-agent problem, bankruptcy costs, external finance, and tax convexity. This paper offers a different reason: idiosyncratic risk makes business decisions more difficult. Risk can increase the value of investment projects because of option value. We must distinguish, however, between risk over the expected value of profits (value risk'') and risk over the volatility of cash flows (cash-flow noise''). Value risk is good because an unprofitable policy can be abandoned. Cash-flow noise is bad because it makes learning when to abandon more difficult. This distinction is unrelated to Knightian risk or ambiguity aversion, and it matters even if the firm's agents are risk neutral. http://www.rasmusen.org/papers/risk_aversion.pdf.

7. "Splitting a Pie: Mixed Strategies in Bargaining under Complete Information," with Christopher Connell. We characterize the mixed-strategy equilibria for the bargaining game in which two players simultaneously bid for a share of a pie and receive shares proportional to their bids, or zero if the bids sum to more than 100%. Of particular interest is the symmetric equilibrium in which each player's support is a single interval. This consists of a convex increasing density $f_1(p)$ on $[{a}, 1-{a}]$ and an atom of probability at $a$, and is unique for given $a \in (0, .5)$. The two outcomes with highest probability are breakdown and a 50-50 split. We use the same approach to characterize all symmetric and asymmetric equilibria over multiple intervals, and all equilibria (such as "hawk-dove") that mix over a finite set of bids instead of intervals. http://www.rasmusen.org/papers/mixedpie.pdf

8. Market Failure and Government Failure: The Regulation of Business. I am writing an undergraduate textbook on regulation. I start with 4 chapters of theory (supply-and- demand, market failure, government failure, discounting and life valuation) and have just 2 chapters of antitrust, with 6 more chapters on other topics. My aim is to write a relatively short book (350 pages) with lots of photos and stories, skipping many topics and being interesting enough for someone to read for recreation.I also want to charge a low price, and I might well self-publish. http://www.rasmusen.org/regulation/

9. "Back to Bargaining Basics." Nash (1950) and Rubinstein (1982) give two different justifications for a 50-50 split of surplus to be the outcome of bargaining with two players. I offer a simple static theory that reaches a 50-50 split as the unique equilibrium of a game in which each player chooses a toughness level'' simultaneously, but greater toughness always generates a risk of breakdown. Introducing asymmetry, a player who is more risk averse gets a smaller share in equilibrium. If breakdown is merely delay, then the players' discount rates affect their toughness and their shares, as in Rubinstein. The model is easily extended to three or more players, unlike earlier models, and requires minimal assumptions on the functions which determine (a) breakdown probability and (b) surplus share, as functions of toughness. http://www.rasmusen.org/papers/bargaining50.pdf

10. The Concealment Argument: Why No Conclusive Evidence or Proof for God's Existence Will Be Found.'' Logic and Biblical evidence suggest that God wishes that some but not all humans become convinced of His existence and desires. If so, this suggests that attempts to either prove or disprove such things as God's existence, past miracles, or present supernatural intervention are doomed to failure, because God could and would take care to evade any such efforts. In tex and pdf. (http://rasmusen.org/papers/conceal-rasmusen.pdf).

### 3. Less Active Papers

11. "If You Support Free Trade, Why Not Free Immigration?" Immigration increases the income of native capital more than it reduces the income of native labor, as is often the case with free trade in goods. Immigration differs, however, in that if the aggregate production function has diminishing returns to private capital and labor this easily reverses the conclusion. This is likely because public capital— government and social capital— is unpriced, and immigrant labor receives a portion of its benefit. Thus, whether the total income of natives rises or falls with immigration, even aside from consumption externalities and excess of spending over taxes, remains an open question. http://rasmusen.org/papers/immigration-rasmusen.pdf.

12. "Fine Tuning, Hume’s Miracle Test, and Intelligent Design" with Eric Hedin. “Fine tuning” refers to the well-known puzzle that the values of certain physical parameters need to take certain precise values for life to exist, values tuned to within 1 in 1050. Some therefore suggest that an intelligent designer must have created the universe. A “miracle” is an event highly improbable according to our prior beliefs. Hume’s miracle test says that if someone tells us a miracle has occurred, we should balance the probability it truly did occur against the probability he is lying. Fine-tuning is conceptually the same as a miracle. Physicists propose a theory consistent with the data, but it is consistent only if one or more parameters takes an extremely low-probability value. Hume’s miracle test tells us we must compare this with the probability the scientists are lying or deceived. That is highly improbable, but as improbable as the “miracle”? If not, our choice is not between intelligent design and random coincidence, but between intelligent design and current scientific theory. Without the feature of a designer, the supposed fit to data of several standard scientific theories is less probable than that the leaders in those subfields are lying or deceived. Intelligent design makes a falsifiable prediction: that current physics theory will continue to make correct predictions of reality, of which fine-tuning will be a part. The alternative, scientist fraud or error, implies that in time current scientific theory will prove to be false and the coincidences will disappear. Thus, intelligent design is the savior of physics, not its rival. http://rasmusen.org/papers/hume-rasmusen-hedin.pdf.

13. "Understanding Shrinkage Estimators: From Zero to Oracle to James-Stein." The standard estimator of the population mean is the sample mean, which is unbiased. Constructing an estimator by shrinking the sample mean results in a biased estimator, with an expected value less than the population mean. On the other hand, shrinkage always reduces the estimator's variance and can reduce its mean squared error. This paper tries to explain how that works. I start with estimating a single mean using the zero estimator and the oracle estimator, and continue with the grand-mean estimator. Thus prepared, it is easier to understand the James-Stein estimator, in its simple form with known homogeneous variance and in extensions. The James-Stein estimator combines the oracle estimate's coefficient shrinking with the grand mean estimator's cancelling out of overestimates and underestimates. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2675681.

14. Why Use Requirement Contracts? The Tradeoff between Hold Up and Breach.'' A requirements contract is a form of exclusive dealing in which the buyer promises to buy only from one seller if he buys at all. This paper models a most common-sense motivation for such contracts: that the buyer wants to ensure a reliable supply at a pre-arranged price without any need for renegotiation or efficient breach. This requires that the buyer be unsure of his future demand, that a seller invest in capacity specific to the buyer, and that the transaction costs of revising or enforcing contracts be high. Transaction costs are key, because without them a better outcome can be obtained with a fixed- quantity contract. The fixed-quantity contract, however, requires breach and damages. If transaction costs make this too costly, an option contract does better. A requirements contract has the further advantage that it evens out the profits of the seller across states of the world and thus allows for an average price closer to marginal cost. http://www.rasmusen.org/papers/requirements-rasmusen.pdf.

15. "The Ted Hill Male Variability Paper that the Math Journals Suppressed." Two mathematics journals first accepted and then unaccepted Ted Hill's paper on modelling the evolutionary advantage of male variability. This essay, posted as a blog entry, tells the story, with links, and discusses motivations and ethics.

16. "Getting around the State and Local Tax Deduction Limit." The 2017 tax bill put a cap of $10,000 on the deduction for state and local taxes, while retaining existing rules for charitable donations. Could states enact 100% state tax credits for donations to the state treasury, so taxpayers could deduct as much as they wanted on their federal tax returns. I argue that these donations would and should be treated as quid pro quo items unlike state tax credits for other donations. 17. Voter Ideology: Regression Measurement of Position on the Left-Right Spectrum,'' (with J. Mark Ramseyer). For scholars who need a measure of political preferences, a person's position on the ideological spectrum provides a good start. Typically, scholars identify that position through factor analysis on survey questions. In effect, they assume that the calculated synthetic variable marks the person's location on the liberal-conservative spectrum. They then use that ideology variable either as the focus of a study on ideology, or as a control variable in other regressions. The leading attitudinal surveys--- the GSS, the CCES, and the ANES--- include a variable giving a respondent's self-identified ideology. Factor analysis assigns this variable no special prominence. To treat this self-identification appropriately, we urge scholars to instead measure ideology using the fitted value from a regression of self- identified ideology on other survey responses. In contrast to factor analysis, the regression approach assigns proper priority to self- identification; it lets us test whether voters identify their own ideology through identity-group variables; it avoids the bias introduced in choosing the issue variables to include in the factor analysis; and it identifies the issues that the average voter thinks best define liberal'' and conservative.'' http://www.rasmusen.org/papers/spectrum-ramseyer-rasmusen.pdf. 18. "Competitive Hold-Up: Monopoly Prices Too High to Maximize Profits when Retailers or Complement Goods Are Perfectly Competitive.'' If a monopolist cannot commit to a wholesale price in advance, even competitive retailers will be reluctant to enter the market, knowing that once they have entered, the monopolist has incentive to choose a higher price and reduce their quasi-rents. I call this inefficiently high price competitive hold-up''. Competitive hold-up arises from upstream opportunism, not downstream market power, and so is distinct from two problems that look superficially similar, double marginalization and the two- monopoly complements externality. http://rasmusen.org/papers/holdup-rasmusen.pdf. 19. "The Transfer Paradox in International Trade," with Minwook Kang. The transfer paradox occurs when one country transfers wealth to another and the result once prices reach their new equilibrium is that the giver is better off and the recipient worse off. We revisit this classic paradox, distinguishing five different ways it can occur and offering intuition and numerical examples not available in the literature. http://rasmusen.org/papers/transfer-kang-rasmusen.pdf. 20. Isoperfect Price Discrimination: Bargaining and Market Power,'' with David Myatt. Standard discussions of perfect price discrimination rest on a hidden assumption: that the monopolist can make take-it-or-leave-it offers. If a monopoly charges different prices to each of a large number of buyers, the correct paradigm is not the ultimatum game, but bilateral monopoly. The monopolist's profit will not be the entire surplus, but something less. Under balanced isoperfect price discrimination''-- a constant .5 split of the bargaining surplus with each buyer--- and constant marginal cost, the monopolist has the same profit as monopoly pricing if the demand curve is linear, less if demand is concave, and more if demand is convex. Increasing marginal cost tends to make the monopolist prefer price discrimination. Isoperfect price discrimination is complemented by an idiosyncratic product design and informative advertising, whereas simple monopoly pricing is facilitated by plain-vanilla designs promoted via pure hype. Competition pushes suppliers away from isoperfect price discrimination and towards simple posted pricing. http://www.rasmusen.org/papers/pdisc-myatt-rasmusen.pdf. 21. Book Publishing Ideas: I've put these on a separate page, at http://www.rasmusen.org/abros.htm. ### 3. Useful Notes, Not for Publication 1. "Principles of Graphs and Tables." Tips for undergraduate writing ( http://www.rasmusen.org/g492/14_graphs.htm). ### 4. Miscellaneous, without Circulating Papers, maybe will never get to first draft 1. "Deciding Whether to Buy a Public Good for Two Players Who Know Each Others' Valuations: A Simple, Almost Efficient, Budget-Balancing, Breakdown Mechanism," (with Christopher Connell). Consider two players with values$v_1$and$v_2$for a public good known each other but not the decider, who knows only the cost of 100. It is natural that both would lobby the decider, and that he would decide whether to build the project and how much each should pay as a continuous function of the intensity of their stated desires. This will not attain the efficient result (build if and only if$v_1+v_2\geq 100\$) but it has a unique Nash equilibrium, with a fair cost allocation. Moreover, if the decider can use his own choice of authorization probability function'' he can come arbitrarily close to the efficient result. We compare this with a variety of well-known mechanisms that attain full efficiency but have other drawbacks such as lack of budget balance, complexity, and multiple equilibria. http://www.rasmusen.org/papers/xxx.pdf

2. Cheap Talk Idea (with Rick Harbaugh)

3. When Should Confidential Agreements Be Enforceable? Contracts made against public policy are unenforceable, and this should include contracts made to conceal illegal behavior, criminal or civil.

4. Idea: "Agape, the Golden Rule, the Rule of Law, and Wealth Maximization: All the Same Idea?" Agape is better translated as "esteem" than "love". Applied to public policy, it implies equality under the law, not pity or social justice. Mercy is a Christian private virtue, but not a public one.

5. Idea: "Do You Want a Smart Boss or a Stupid One?"

6. Idea:Going from 2-by-2 to 1-by-1 in Basic Trade Theory.''

7. Idea:The Bagehot Rule Should Drop the Secure Collateral Proviso.''

8. Idea: "Belief in God: A Game Theory Approach. "

9. Idea: "Technological Inefficiency of Monopolies: Hayekian and Organizational Approaches"

10. Notes on Biased Experts in a Sender-Receiver Model.'' http://www.rasmusen.org/papers/bias-rasmusen.tex.

11. "Three Years or Six to Audit? The Ill-Considered Intermountain Decision," The IRS wishes to interpret “omits from gross income” to mean “reports but understates gross income” to extend the period for audit from three years to six. It took that position without notice-and-comment, in the context of the hot pursuit of a particular tax shelter, and after losing in court, with all 13 Tax Court judges concurring, it made the motions of going through notice-and-comment so as to get Chevron deference on appeal. This paper discusses what should be considered in choosing a statute of limitations and points out how these considerations were completely ignored in IRS decisionmaking. This provides a good example for showing how the various theories of Chevron deference work.

12. What Asset Sale Price Is Fair? – The Chrysler Bankruptcy Section 363 Sale'' (with J. Mark Ramseyer).

13. "A Simple Model of Keynesian Fiscal Policy." A one-input, one-period, two-good, extremely simple structural model with rigid prices and labor markets can generate Keynesian effects.

URL: http://www.rasmusen.org/unpabs.htm. Indiana University, Department of Business Economics and Public Policy, in the Kelley School of Business, HH3080H, 1309 East Tenth Street, Bloomington, Indiana 47405-1701, (812)855-9219. Comments: Erasmuse@Indiana.edu.

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