Rasmusen's Unpublished Papers (August 2017)

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

1. Working Papers
2. Forthcoming
3. Useful Notes, Not for Publication
4. Topics I Am Working On Without Circulating Papers
I have a separate page for papers that I don't think I will ever publish.

1. Forthcoming

  1. ``Coarse Grades,'' with Rick Harbaugh, forthcoming, American Economic Journal: Microeconomics. Certifiers of quality often report only coarse grades to the public despite having measured quality more finely, e.g., "A" instead of "98". Why? We show that using coarse grades can actually result in more information reaching the public, because it encourages low-quality individuals or firms to become certified. In our model the certifier aims to minimize public uncertainty over quality subject to the feasibility constraint of voluntary certification at a fixed cost. Moving from the best exact grading scheme to the best coarse one (a) induces more participation and (b) reduces public uncertainty. http://www.rasmusen.org/papers/coarse-harbaugh-rasmusen.pdf.

  2. ``Law, Coercion, and Expression: A Review Essay on Frederick Schauer's The Force of Law and Richard McAdams's The Expressive Powers of Law.'' Forthcoming, Journal of Economic Literature, 55 (3) (2017). What is law and why do people obey it? This question from jurisprudence has recently been tackled using the tools of economics. The field of law-and-economics has for many years studied how fines and imprisonment affect behavior. Nobody believes, however, that all compliance is motivated by penalties and it is questionable whether that is even the typical motivation. Two books published in 2015, Frederick Schauer's The Force of Law and Richard McAdams's The Expressive Powers of Law, consider alternative motivations, Schauer skeptically and McAdams more sympathetically. While coercion, either directly or in its support of internalized norms, seems to dominate law qua law (and not as a mere expression of morality), a considerable portion of law serves other uses such as coordination, information provision, expression, and reduction of transaction costs. http://www.rasmusen.org/published/expressive-law-rasmusen.pdf.

  3. "Incomplete Information in Repeated Coordination Games," forthcoming in Applied Approaches to Societal Institutions and Economics, eds. Woohyung Lee, Tohru Naito, and Yasunori Ouchida, Springer. Asymmetric information can help achieve an efficient equilibrium in repeated coordination games. If there is a small probability that one player can play only one of a continuum of moves, that player can pretend to be of the constrained type and other players will coordinate with him. This hurts efficiency in the repeated battle of the sexes, however, by knocking out the pure-strategy equilibria. http://www.rasmusen.org/papers/goodtype-rasmusen.pdf.

  4. ``Identity Politics and Organized Crime in Japan: The Impact of Targeted Subsidies on Burakumin Communities,'' (with J. Mark Ramseyer), forthcoming, {\it Journal of Empirical Legal Studies}, 14 (4) (December 2017). In 1969 the Japanese government launched a subsidy program (the SMA) targeted at the traditional outcastes known as the burakumin. The subsidies attracted the organized crime syndicates, who diverted funds for private gain. Newly enriched, they shifted large numbers of young burakumin men away from legal business and intensified the tendency many Japanese already had to equate the burakumin with the mob. Although the resulting community centers and public housing improved burakumin infrastructure, they also lowered the cost to the public of identifying burakumin neighborhoods. We explore the effects of the termination of the program in 2002 by integrating 30 years of modern municipality data with a 1936 census of burakumin. Outmigration from municipalities with more burakumin increased significantly after the end of the program. Apparently, the subsidies restrained burakumin from joining mainstream society. Conversely, once the mob-tied corruption and extortion associated with the subsidies ended, real estate prices in burakumin neighborhoods rose; it seems other Japanese found the burakumin communities more attractive places to live after the subsidies ended. http://www.rasmusen.org/papers/burakumin-ramseyer-rasmusen.pdf.

2. Working Papers

  1. "Odd, Enter; Even, Out: Sequential Contests with Entry Costs." What happens when an incumbent contest winner faces possible entry and challenge from later rivals? In deciding whether to pay a cost to enter immediately, later, or never, each rival must look ahead to future rivals. If the prize is relatively small, the first rival's expected payoff from entry is negative if he faces the prospect of having to defeat a second rival, but positive if the second rival himself fears to enter because of later rivals. As a result, in equilibrium no rivals enter when the number of rivals is even, and exactly one enters when the number is odd. If the prize is larger, the equilibria become complex but still include equilibria with no entry. In the setting of challenges to a political leader, it can happen that the incumbent can survive even if he is weaker than his rivals, he may wish to end the advantage of incumbency, and a player may benefit by weakening his ability win a given contest. http://www.rasmusen.org/papers/oddeven-rasmusen.pdf

  2. "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.

  3. "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.

  4. Project: The State of New York ex. rel. Eric Rasmusen v. Citigroup, Inc. I'm suing Citigroup for $2.4 billion because it underpaid its New York State taxes, with IRS permission. The website and FAQ's is at http://rasmusen.org/citigroup.

  5. The Economics of Regulation: Coercion for the Public Good. 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/g406/chapters/

    "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.

  6. ``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.

  7. "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.

  8. ``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.

  9. ``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.

  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).

  11. "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.

  12. 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. Niccolò Machiavelli: The Han Fei of Italy? (with Dan Zhao) The history of political thought pivots on Machiavelli’s 16th century writings. His concentration on techniques of state survival and his audacious marginalizing of morality were revolutionary. Less well-known is the similar concentration and and marginalizing by Han Fei in the China of the 3rd century B.C. Not only were his methods and conclusions similar, but just as Machiavelli was condemned by the Christian world even as his approach came to dominate it, so Han Fei was condemned by the Confucian intelligentsia but changed how Confucians thought.

  2. Project: Mixed-Strategy Equilibria in Splitting a Pie, with Christopher Connell. We characterize the mixed-strategy equlibria in the classic bargaining game, "Splitting a Pie" and derive for the first time the symmetric equilibrium of mixing over a continuous interval of shares.

  3. Project: "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.

  4. Project: "Should Copyright Be Removed from Operating Systems? "

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

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

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

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

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

  10. Project: "Stigma in a Moral Hazard Model."

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

  12. "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.

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

  14. "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, BU 456, 1309 East Tenth Street, Bloomington, Indiana 47405-1701, (812)855-9219. Comments: Erasmuse@Indiana.edu.

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