Information Economics and Industrial Organization


Prices and Deadweight Loss in Multi-Product Monopoly, in: Journal of Public Economic Theory 18, 2016: 346-362.

The paper investigates prices and deadweight loss in multiproduct monopoly with linear interrelated demand and constant marginal costs. We show that, with commonly used models for linear demand such as the Bowley demand and vertically or horizontally differentiated demand, the price for each good is independent of demand cross-effects and of the characteristics and number of other goods. This contrasts with the oft-expressed view that prices critically depend on demand cross-effects. We also show that for these linear models, the deadweight loss due to monopoly amounts to half the total monopoly profit. Finally, we show how a production subsidy might restore social efficiency. With Rabah Amir, Jim Jin and Michael Troege

JEL classification D42; L12; Keywords: multi-product monopoly prices, interdependent products, pricing complements, pricing substitutes, linear demand.
Working Paper LINK Journal Article LINK


Penalties in the theory of equilibrium tax evasion: Solving King Johnís problem, Public Finance Review 39, 2011: 5-25.

We characterize equilibria of an income reporting game with bounded returns where a predatory government fines detected tax evaders the maximal feasible amount. We derive a unique equilibrium as the limit of equilibria where the fine is slightly less than the maximum value: For sufficiently low auditing costs, the poorest citizens evade, intermediate citizens are honest and the richest citizens are indifferent between evading and truth-telling. We introduce commitment to impose less than the maximal punishment on some offenders. With low auditing costs commitment never pays. At high auditing costs, commitment may result in an increase in tax revenue. With Bernhard K. Neumaerker

JEL classification D82; H26; Keywords: Tax Evasion, Signaling LINK.


Public Debt and Classical Rules in Public Finance: Lessons from the Equilibrium Budget Cycle Approach, Finanzarchiv, N.F., Bd. 54, 1997, pp. 537-562..

In this paper we prove the existence of a separating equilibrium in a signalling game with public expenditures, distortionary taxation and public debt where voters cannot observe the ability of politicians or the true size of public debt. We show that policies under a balanced budget rule are information-revealing if ability shows in a difference in productivity in the supply of public goods. The policy under the budget rule dominates the policy in the signalling equilibrium from a welfare point of view if incentives to engage in signalling are sufficiently strong. In the case of a public investment opportunity, the balanced budget rule for current expenditures can be supplemented by a rule stating that public investments be completely or partially debt financed. Therefore, a rule like the pay-as-you-use principle is recommendable under the aspect of coping with incentives to use inefficient signalling methods, if the same principle goes along with a balanced budget rule for current expenditures.

JEL classification D82; H61, H62; Keywords: Public Debt, Signaling LINK.


04.04.2007; (C) 2000 by Gerald Pech