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Making the Most of Limited Government Capacity: Theory and Experiment

Author

Listed:
  • Sylvain Chassang

    (Princeton University)

  • Lucia Del Carpio

    (INSEAD)

  • Samuel Kapon

    (New York University)

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.

Suggested Citation

  • Sylvain Chassang & Lucia Del Carpio & Samuel Kapon, 2020. "Making the Most of Limited Government Capacity: Theory and Experiment," Working Papers 2020-7, Princeton University. Economics Department..
    • Handle: RePEc:pri:econom:2020-7
    as

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    References listed on IDEAS

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    More about this item

    Keywords

    government capacity; limited enforcement; divide and conquer; common knowledge enforcement priorities; tax collection; bounded rationality; information design;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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