Global Inspection Games (GIG) in the laboratory

Sanchez Villalba, Miguel (2017): Global Inspection Games (GIG) in the laboratory.

Abstract

Sanchez Villalba (2015) claims inspection games can be modelled as global games when agents face common shocks. For the tax evasion game -his leading example- he prescribes that the tax agency should audit each individual taxpayer with a probability that is a non-decreasing function of every other taxpayer's declarations ("relative auditing strategy"). This paper uses experimental data to test the predictions of the model and finds supporting evidence for the hypothesis that the relative auditing strategy is superior to the alternative "cut-off" one. It also finds that data fit the qualitative predictions of the global game model, regarding both participants' decisions and the experiment's comparative statics.

• Item Type: MPRA Paper
• Language: English
• Keywords: Global Games, Experimental Economics, Tax Evasion, Rationality, Information, Beliefs
• Subjects: C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory; C - Mathematical and Quantitative Methods > C9 - Design of Experiments > C91 - Laboratory, Individual Behavior; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H26 - Tax Evasion and Avoidance

References

Alm, J. and M. McKee (2004). Tax compliance as a coordination game. Journal of Economic Behavior and Organization 54, 297-312.

Bosch-Domenech, A., J. G. Montalvo, R. Nagel, and A. Satorra (2002, December). One, two, (three), infinity,...: Newspaper and lab beauty-contest experiments. American Economic Review 92 (5), 1687-1701.

Cabrales, A., R. Nagel, and R. Armenter (2007). Equilibrium selection through incomplete information in coordination games: An experimental study. Experimental Economics 10, 221-234.

Carlsson, H. and E. van Damme (1993). Global games and equilibrium selection. Econometrica 61 (5), 989-1018.

Fischbacher, U. (2007). z-tree: Zurich toolbox for ready-made economic experiments. Experimental Economics 10 (2), 171-178.

Harsanyi, J. C. and R. Selten (1988). A General Theory of Equilibrium Selection in Games. Cambridge, MA. MIT Press.

Heinemann, F., R. Nagel, and P. Ockenfels (2002, June). Speculative attack and financial architecture: Experimental analysis of coordination games with public and private information. FMG Discussion Papers, LSE, UK (DP 416).

Heinemann, F., R. Nagel, and P. Ockenfels (2004, September). The theory of global games on test: experimental analysis of coordination games with public and private information. Econometrica 72 (5), 1583-1599.

Heinemann, F., R. Nagel, and P. Ockenfels (2009). Measuring strategic uncertainty in coordination games. Review of Economic Studies 76, 181-221.

Holt, C. and S. K. Laury (2002, December). Risk aversion and incentive effects. American Economic Review 92 (5), 1644-1655.

Morris, S. and H. S. Shin (2002). Social value of public information. American Economic Review 92 (5), 1521-1534.

Reinganum, J. and L. Wilde (1985). Income tax compliance in a principal-agent framework. Journal of Public Economics 26, 1-18.

Sanchez Villalba, M. (2015). Global inspection games. Journal of Public Economics 128, 59-72.

Selten, R., A. Sadrieh, and K. Abbink (1999). Money does not induce risk neutral behavior, but binary lotteries do even worse. Theory and Decision 46, 211-249.

Stahl, D. O. and P. W. Wilson (1994). Experimental evidence on players' models of other players. Journal of Economic Behaviour and Organization 25, 309-327.