CHEATING IN CONTESTS

Wherever competition is used to motivate a desirable activity or productive effort it may also motivate undesirable and therefore prohibited behavior—that is, cheating—that the organizer of the contest attempts to police. For example, when workers compete for promotion, bonuses, or other rewards, they may misrepresent their output (i.e., commit fraud) or increase their output by unacceptable means (e.g., violate regulations). We show how the extent of cheating is determined by the payoffs at stake in the contest, the random component of output, probability of cheating being detected, number of contestants, and the penalty associated with being found to have cheated. We find that while greater enforcement reduces cheating, it may also reduce productive effort. We also identify how two particular aspects of enforcement, the awarding of default victories and use of correlated rather than independent audits, affect cheating behavior. (JEL J33, K42)     

ECONOMIES OF SCALE IN BANKING,INDETERMINACY, AND MONETARY POLICY

This paper investigates economies of scale (ES) in financial intermediation as a source of equilibrium indeterminacy. Financial intermediation is embedded into a standard flexible‐price monetary model, and provides deposits (inside money) that substitute with currency to purchase consumption. The results indicate that equilibrium indeterminacy does not depend on a large degree of ES in intermediation nor a large intermediation sector, but on monetary policy and the determination of nominal interest rates. Monetary policies not targeting nominal rates allow for indeterminacy to arise for any positive degree of ES, while policies targeting nominal rates eliminate indeterminacy for all degrees of ES. (JEL C62, E44, E52)     

FISCAL STRUCTURES AND ECONOMIC GROWTH: INTERNATIONAL EVIDENCE

Our paper systematically examines the effects of fiscal structure on economic growth. We find that for developing countries, debt-financed increases in government expenditure retard growth and tax-financed increases stimulate growth, while for developed countries, debt-financed increases in government expenditure do not affect growth and tax-financed increases lower growth. We impose the government budget constraint on the regression equations so that the precise changes in fiscal policy can be identified (e.g., the effect of a debt-financed increase in health expenditure), employing a pooled cross-section, time-series sample and fixed- and random-effect methods. (JEL 04, E6)