Rasmusen's Unpublished Papers (January 24, 2017)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
3. Useful Notes, Not for Publication
4. Topics I Am Working On Without Circulating
I have a separate page for papers that I
don't think I will ever publish.
"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
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.
- "The Transfer Paradox in International Trade," with
The transfer paradox occurs when one country transfers wealth to
the result once prices reach their new equilibrium is that the giver
better off and the recipient worse off. We revisit this classic
distinguishing five different ways it can occur and offering intuition
numerical examples not available in the literature.
- 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.
- 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-
failure, government failure, discounting and life valuation) and have
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,
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.
"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
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
- ``Coarse Grades,'' with Rick Harbaugh.
Certifiers of quality often report only coarse grades to the
despite having measured quality more
finely, e.g., "A" instead of "98". Why? We show that using coarse
actually result in more information
reaching the public, because it encourages low-quality individuals or
become certified. In our model the
certifier aims to minimize public uncertainty over quality subject
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.
- ``Identity Politics and Organized Crime in Japan:
The Effect of Special Subsidies for Burakumin Communities,''
(with J. Mark Ramseyer).
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.
- ``Voter Ideology: Regression Measurement of Position on
Left-Right Spectrum,'' (with J. Mark Ramseyer). For scholars who
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.''
- "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.
- ``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
- ``Isoperfect Price Discrimination: Bargaining and Market
Power,'' with David Myatt. Standard discussions of perfect
discrimination rest on a hidden
assumption: that the monopolist can make take-it-or-leave-it offers.
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''--
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
is concave, and more if demand is convex. Increasing marginal cost
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.
pushes suppliers away from isoperfect price discrimination and towards
simple posted pricing.
- ``The Concealment Argument: Why No Conclusive Evidence
or Proof for
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
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).
- "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.
- Book Publishing Ideas: I've put these on a separate page,
``Concavifying the Quasi-Concave,'' with Christopher
Connell, forthcoming, The Journal of Convex Analysis.
We show that if and only if a real valued function f is
quasi-concave except possibly for a flat interval at its maximum
to a precise regularity class, there exists a strictly monotonically
function g such that g of f is concave.
We prove this sharp sharp characterization of quasi-concavity for
Euclidean space or even any arbitrary geodesic metric space. We also
a simpler sufficient condition suitable for most applications for
concavifiability on Euclidean spaces or any other Riemannian
version with intuition and extra results) and
- ``A Model of Trust in Quality and North-South Trade.''
Forthcoming, Research in Economics.
Why do some countries produce higher quality goods than other
This article suggests that one reason is self-perpetuating
the idea with a Klein-Leffler reputation model embedded in a general
model of trade. Reputation differences are particularly interesting
because reputation is a form of social capital that is amenable to
differentation, it can explain why countries might trade even if their
and endowments are identical, why firms could profit from exports
foreign price is no higher than the domestic one, and why governments
like to have
"high-value" sectors. Ideally, a developing country would shift its
to a high-quality equilibrium; if that is not possible, the next best
thing is to
import experience goods and substitute to home production of goods for
reputation is not important.
- ``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. 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.
"Incomplete Information in Repeated Coordination Games,"
forthcoming in Essays in Honor of Moriki Hosoe, 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
player can play only one of a continuum of moves, that player can
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.
Graphs and Tables." Tips for undergraduate writing (
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.
- 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.
- Project: "Should Copyright Be Removed from Operating
- Project: "Do You Want a Smart Boss or a Stupid One?"
- Project:``Odd, Enter; Even, Out: A Peculiarity of Buyout,
Blackmail, Extortion, and
Nuisance Suit Games.''
- Project:``Going from 2-by-2 to 1-by-1 in Basic Trade
- Project:``The Bagehot Rule Should Drop the Secure Collateral
- "Belief in God: A Game Theory Approach. "
- Project: "Technological Inefficiency of Monopolies: Hayekian
and Organizational Approaches"
- Project: "Stigma in a Moral Hazard Model."
- Notes on ``Biased Experts in a Sender-Receiver Model.''
- "Three Years or Six to Audit? The Ill-Considered Intermountain
Decision," The IRS wishes to interpret “omits from gross income” to mean
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
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
choosing a statute of limitations and points out how these
completely ignored in IRS decisionmaking. This provides a good example
how the various theories of Chevron deference work.
- ``What Asset Sale Price Is Fair? – The Chrysler Bankruptcy
Sale'' (with J. Mark Ramseyer).
- "A Simple Model of Keynesian Fiscal Policy." A one-input,
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
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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