Contributions published at Theory of Economic Policy and Non-Market Economics (Bruno Frey)

A psychological tax contract goes beyond the traditional deterrence model and explains tax morale as a complicated interaction between taxpayers and the government. As a contractual relationship implies duties and rights for each contract party, tax compliance is increased by sticking to the fiscal exchange paradigm between citizens and the state. Citizens are willing to honestly declare income even if they do not receive a full public good equivalent to tax payments as long as the political process is perceived to be fair and legitimate. Moreover, friendly treatment of taxpayers by the tax office in auditing processes increases tax compliance.

In view of recent corporate scandals, it is argued that corporate governance can learn from public governance. Institutions devised to control and discipline the behavior of executives in the political sphere can give new insights into how to improve the governance of firms. Proposals in four specific areas are discussed: manager compensation, the division of power within firms, rules of succession in top positions, and institutionalized competition in core areas of the corporation.

Nordic historians have asserted for a long time that in the Nordic countries only few people, if any, perceived increased threats of war prior to the World War II outbreak. This would explain, and possibly excuse, why their governments did not mobilize their armies until it was too late. This paper questions this established notion by deriving new estimates of widely held war threat assessments from the fluctuations of sovereign market yields collected from all Nordic bond markets at this period. Our results show that the Nordic contemporaries indeed perceived significant war risk increases around the time of major war-related geopolitical events. While these findings hence question some, but not all, of the standard Nordic World War II historiography, they also demonstrate the value of analyzing historical market prices to reassess the often tacit views and opinions of large groups of people in the past.

The idea that there is a uniformly “optimal” governance structure for corporationsnfeatures prominently in current debates and policy proposals. In this paper, we propose andifferent, constitutional theory of corporate governance: the criterion for a good corporatengovernance structure is whether it is freely chosen by the shareholders. We illustrate ournapproach by comparing the constitutional rights of shareholders under US corporate law and Swiss corporate law. Moreover, we discuss the mandatory provisions that shareholders would likely include in corporate law at a constitutional stage, behind the veil of ignorance.

One can be independent, or subject to decisions made by others. This paper argues that this difference, embodied in the institutional difference between the decisionmaking procedures “market” and “hierarchy”, affects individual well-being beyond outcomes. Taking self-employment as an important case of independence, it is shown that the self-employed derive higher satisfaction from work than people employed innorganizations, irrespective of income gained or hours worked. This is evidence for procedural utility: people do not only value outcomes, but also the processes leading to outcomes.

Agency Theory as the dominant view of Corporate Governance disregards that the key task of firm governance is to generate, accumulate, transfer, and protect firm specific knowledge. Three different foundations to the theory of the firm which underpin different concepts of corporate governance are discussed: The traditional view of the firm as a nexus of contracts, the view of the firm as a nexus of firm specific investments and the view of the firm as a nexus of firm specific knowledge investments. The latter view distinguishes two fundamental differences between contracting firm specific knowledge investments in contrast to financial investment: (1) A knowledge worker cannot contract his or her future knowledge in the same way as the exchange of tangible goods. (2) Only insiders can evaluate firm specific knowledge generation and transformation. We suggest a concept of corporate governance that takes investments in firm specific knowledge into account: (1) The board should rely more on insiders. (2) Those employees of the firm making firm-specific knowledge investments should elect the insiders. (3) A neutral person should chair the board. This concept provides a theoretical foundation of corporate governance based in the knowledge-based theory of the firm.

In many countries, TV viewers have access to more and more TVnchannels. We study whether people can cope with this and watch the amount of TVnthey find optimal for themselves or whether they are prone to over-consumption. Wenfind that heavy TV viewers do not benefit, but instead report lower life satisfactionnwhen exposed to more TV channels. This finding runs counter to the standardneconomic prediction that a larger choice set does not make people worse off. Itnsuggests that an identifiable group of persons experience a self-control problemnwhen it comes to TV viewing.

“Evaluitis” - i.e. ex post assessments of organizations and persons - has become a rapidly spreading disease. In addition to the well-known costs imposed on evaluees and evaluators, additional significant costs are commonly disregarded: incentives are distorted, ossification is induced and the decision approach is wrongly conceived. As a result, evaluations are used too often and too intensively. A viable and oftennsuperior alternative to evaluations is a careful selection of persons and afterwards leaving them to pursue their assigned tasks.

The standard principal agent model considers monetary incentives only. It is assumed that money is more efficient than other forms of material, non-monetary compensation. Awards in the form of titles, orders, medals and honors (prizes)– though almost omnipresent – have so far escaped the attention of economists. They present extrinsic, non-monetary incentives that operate through the innate desire of human beings for recognition and status. In this article, we analyse the differences between monetary incentives and awards: in general, awards are cheap, lead to interpersonal relationships, are not directly related to performance and have a signalling value. In addition, they support intrinsic motivation, may increase social welfare and are exempt from taxation. Awards present an important additional instrument to be considered in principal agent theory. In many contexts they are superior to monetary compensation.

Recently, the problems associated with the existing journal review processnaroused discussions from seasoned management researchers, who have also made useful suggestions for improving the process. To complement these suggestions, we propose a more radical change: a manuscript should be reviewed on an “as is”nbasis and its fate be determined in one round of review. The as-is review process shortens the time period from submission to final acceptance, reduces thenworkload of editors, referees and authors, provides frank author feedback to referees, and, most important, lets authors own all of the ideas in their publications.

Why so many people pay their taxes, although fines and audit probability are low, has become a central question in the tax compliance literature. A homo economicus, with a more refined motivation structure, helps us to shed light on this puzzle. This paper provides empirical evidence for the relevance of conditional cooperation, using survey data from 30 West and East European countries. We find a high correlation betweennperceived tax evasion and tax morale. The results remain robust after exploitingnendogeneity and conducting several robustness tests. We also observe a strong positivencorrelation between institutional quality and tax morale.

The traditional economic approach to tax evasion does not appear to be particularly successful in explaining the extent of tax compliance. We argue instead that a psychological tax contractnwhich establishes a fiscal exchange between the state and the citizens shapes tax compliance to a large extent. In that respect, a case study of Switzerland is useful because the small size of the cantons and their direct democratic political systems procedurally establish a close exchangenrelationship between taxpayers and tax authorities. In this paper, evidence is discussednon how tax evasion and tax morale in Switzerland evolved over time. In addition, the impact of economic, legal, socio-demographic, psychological and institutional factors on Swiss tax evasion is discussed.

In this paper, we develop the concept of a psychological tax contract that goes beyond thentraditional deterrence model and explains tax morale as a complicated interaction betweenntaxpayers and the government. Based on crowding theory, the impact of deterrence and rewardsnon tax morale is discussed. As a contractual relationship implies duties and rights for each contract partner, sticking to the fiscal exchange paradigm between citizens and the statenincreases tax compliance. Citizens are willing to honestly declare income even if they do not receive a full public good equivalent to their tax payments as long as the political process is perceived to be fair and legitimate. At the procedural level, a friendly treatment of taxpayers by the tax office in auditing processes increases tax compliance.

Many studies have established that people care a great deal about their relative economic position and not solely, as standard economic theory assumes, about their absolute economic position. However, behavioral evidence is rare. This paper provides an empirical analysis on how individuals’ relative income position affectsntheir performance. Using a unique data set for 1114 soccer players over a period ofneight seasons (2833 observations), our analysis suggests that the larger the income differences within a team, the worse the performance of the soccer players is. Thenmore the players are integrated in a particular social environment (their team), thenmore evident this negative effect is.

This chapter discusses the role of environmental morale and environmental motivation in individual behavior from the point of view of economics and psychology. It deals with the fundamental public good problem, and presents empirical (laboratory and field) evidence on how the cooperation problem can be overcome. Four different theoretical approaches are distinguished according to how individuals’ underlying environmental motivation is modeled. Specifically, we look at the interaction between environmental policy and environmental morale through the lens of cognitive evaluation theory (also known as crowding theory).

It has often been pointed out in the literature that a symbiotic relationship exists between terrorist groups and the media. As yet, however, no formal model has been built based on this issue and only very little empirical research has been done in this field. The present contribution builds a simple game theoretic model, focussing on the social interactions between terrorists and the media. The model has features of a common-interest-game and results in multiple equilibria. After a discussion of the policy implications of the model, an empirical analysis is performed. Using newspaper coverage, terror incidents and terror fatalities data, it is shown that media attention and terrorism do mutually Granger cause each other, as predicted by the model. Moreover, it is explained why terror attacks tend to be “bloodier” in developing countries than in Europe and the United States.

Neoclassical economic theory rules out systematic errors in consumption choice. According to the basic view, individuals know what they choose. They are able to predict how much utility an activity or a good produces for them now and in the future and they can maximize their utility. This implies that behavior reveals consistent preferences. This approach makes it impossible to detect and understand sub-optimal consumption decisions, due to problems of self-control and thenmisprediction of utility. We propose the economics of happiness as a methodologicalnapproach to study these phenomena. Based on proxy measures for experiencednutility, it is, in principle, possible to directly address whether some observed behaviornis sub-optimal and is therefore reducing a person’s well-being. We discuss recent evidence on smoking and eating habits, TV viewing and commuting choice.

Many studies have established that people care a great deal about their relative economic position and not solely, as standard economic theory assumes, about their absolute economic position. However, behavioral evidence is rare. This paper provides an empirical analysis on how individuals’ relative income position affectsntheir performance. Using a unique data set for 1114 soccer players over a period ofneight seasons (2833 observations), our analysis suggests that the larger the income differences within a team, the worse the performance of the soccer players is. Thenmore the players are integrated in a particular social environment (their team), thenmore evident this negative effect is.

null

null