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Competition, conflict and institutions: three essays in applied microeconomic theory

Ko, Giovanni (2012) Competition, conflict and institutions: three essays in applied microeconomic theory. PhD thesis, The London School of Economics and Political Science (LSE).

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Abstract

This thesis consists of three papers on completion and conflict in three distinct but related settings. The first paper develops a model of tax compliance and enforcement where homogenous agents receive signals about how tolerant the tax authority is of evasion, and where the latter has imperfect means of detecting evasion. The main results show that increasing the quality of the information that taxpayers have about the tax authority’s tolerance of evasion may increase compliance. This is because if the signals are sufficiently informative, taxpayers are engaged in Bertrand-like competition: if all taxpayers are evading a similar amount, each will have a strong incentive to evade slightly below that amount in order to escape detection. This logic is directly opposed to the culture of secrecy that prevails in many tax administrations. The second paper, jointly written with Madhav Aney, deals with the question of how specialists in violence like the military or the police can commit not to abuse their coercive power. The answer that the paper provides is that competition between specialists in violence creates incentives for them not to expropriate from civilians. The main theoretical results are that these incentives become stronger as competition becomes more intense, both in terms of the number of specialists in violence and in the evenness of their strengths. The hypothesis that greater numbers of specialists in violence leads to less expropriation is tested using crosscountry regressions and found to be strongly consistent with the data, especially for the case of developing countries. The third paper analyses the equilibria of two-player imperfectly discriminating contests of the power-form under incomplete information. This paper develops a method for solving for the Bayesian Nash equilibria of such games by working backwards from the equilibrium distributions of effort, rather than forwards from the distributions of the agents’ types. This method is used to prove that there exist no distributions of type such that effort is an affine function of the type. The method is used to construct an equilibrium where effort is loglogistically distributed, carrying out comparative statics. This equilibrium is shown to be special in that it exhibits a formal equivalence to that in a contest with complete information.

Item Type: Thesis (PhD)
Additional Information: © 2012 Giovanni Ko
Library of Congress subject classification: H Social Sciences > HB Economic Theory
Sets: Departments > Economics
URI: http://etheses.lse.ac.uk/id/eprint/225

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