Date of Award

Summer 8-3-2019

Degree Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Department

Economics

First Advisor

David L. Sjoquist

Second Advisor

H. Spencer Banzhaf

Third Advisor

James C. Cox

Fourth Advisor

Kelly D. Edmiston

Abstract

This dissertation examines how competition shapes behaviors of governments and agents in different scenarios. Governments compete with each other to attract for mobile tax base. Agents and workers face competition to earn prizes and bonus. Competition is an effective way to incentivize proper behaviors. While in some cases, it causes inefficiency and social welfare loss. This dissertation studies environmental regulatory competition, tax competition, and tournament respectively.

The first essay explores the question of whether OECD countries engage in strategic environmental policymaking and use environmental policies to compete for the investment. I directly estimate countries’ strategic interaction, which is the causal effect of other countries’ changes in environmental policies on one country’s environmental policy. Considering that the strategic interaction can be caused by distinct mechanisms, such as the coordination, competition for the investment, and pollution spillovers, this paper also disentangles different mechanisms. This paper employs a new index on measuring countries’ environmental policy stringency and uses spatial econometrics with the Generalized Methods of Moments continuously updated Instrumental Variables estimator. The panel dataset includes 26 OECD countries for the period 1990 to 2012. I find that there is a positive and statistically significant strategic interaction on environmental policy among countries. Moreover, the strategic responses in environmental policymaking are more evident among EU countries than others, and the strategic interaction is further reinforced after adopting the euro as a common currency. Interjurisdictional competition and transboundary pollution spillovers appear to play limited roles in causing the interaction.

Essay 2 uses laboratory experiments to explore governments’ tax policies when there is tax competition. To the best of my knowledge, this is the first experiment paper on tax competition. I design a set of experiments to examine the effects of several factors on tax policies, such as the number of competing regions and the sensitivity of capital movement to the tax rate change. I find that the number of competing regions have a significant and direct impact on governments’ tax choices even keeping the sensitivity of capital movement constant. This finding has not been predicted in the theoretical literature. The sensitivity of capital movement also affect the tax rate choices, but the effect is not as large as the model prediction. I also find the communication among competing regions significantly improves the tax choices and bring about higher social welfare in general. The implications of the results are two folds. The first is that when analyzing tax competition issues, both from a policy perspective and theoretical study perspective, it is important to take the effect of the number of competing regions into consideration. The second policy implication is that it is helpful to promote better and more effective communication among governments.

Essay 3 studies a multi-task tournament in which each agent undertakes two tasks. An agent’s effort on one task creates externalities on the performance of the other task of the agent as well as the performances of other competing agents. We discuss the design of an optimal tournament to achieve a social optimum in the presence of such externalities. In particular, we show that the traditional single-prized tournament is unable to elicit a social optimum, while a task-specific, multi-prized tournament, which we propose in this paper, can achieve socially optimal outcomes.

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