Making the Most of Limited Government Capacity: Theory and Experiment

Sylvain Chassang, Lucia Del Carpio and Samuel Kapon
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Sylvain Chassang: Princeton University
Lucia Del Carpio: INSEAD
Samuel Kapon: New York University

Working Papers from Princeton University. Economics Department.

Abstract: Limits on a government’s capacity to enforce laws can result in multiple equilibria. If most agents comply, limited enforcement is sufficient to dissuade isolated agents from misbehaving. If most agents do not comply, overstretched enforcement capacity has a minimal impact on behavior. We study the extent to which divide-and-conquer enforcement strategies can help select a high compliance equilibrium in the presence of realistic compliance frictions. We study the role of information about the compliance of others both in theory and in lab experiments. As the number of agents gets large, theory indicates that providing information or not is irrelevant in equilibrium. In contrast, providing individualized information has a first order impact in experimental play by increasing convergence to equilibrium. This illustrates the value of out-of-equilibrium information design.

Keywords: government capacity; limited enforcement; divide and conquer; common knowledge enforcement priorities; tax collection; bounded rationality; information design (search for similar items in EconPapers)
JEL-codes: C72 C73 C92 D73 D82 D86 H26 (search for similar items in EconPapers)
Date: 2020-10
New Economics Papers: this item is included in nep-ban, nep-exp, nep-gth and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:pri:econom:2020-7

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