Three Essays on Public Economics and Market Interventions

Edgar Castro Mendez

Advisor: Cesar A Martinelli, PhD, Department of Economics

Committee Members: Daniel Houser, Thomas Stratmann

Online Location, Zoom
November 13, 2023, 11:00 AM to 01:00 PM

Abstract:

This dissertation examines how people and markets respond to government interventions. The first chapter looks at hoarding in anticipation of price distortions such as those introduced by price controls. The second explores the impact of procurement practices during the COVID-19 pandemic. Finally, the last chapter assesses the impacts of clearer government communication on tax collection in Argentina. I study the consequences of these policies using laboratory and field experiments and observational data analysis.

The first chapter studies consumers' hoarding behavior as a rational response to anticipated prices, such as those introduced by price controls. We built our theory around a two-period model, with rationing uncertainty as the main motivation for hoarding. We validate our theory using three experimental setups: i) a free market without hoarding incentives, ii) a price-capped market where hoarding is anticipated due to potential rationing in the second period, and iii) a market with an impending supply shock. Our experimental results reveal a prevalent trend of excessive hoarding among participants, leading to market inefficiencies greater than our theoretical predictions.

The second chapter sheds light on procurement practices during the COVID-19 pandemic. We noticed shifts in Colombia and other regions toward more discretionary procurement methods, which heightened concerns about transparency and corruption. Leveraging a Large Language Model, we analyzed pricing data for 26 standardized products across 35,000 contracts. Contrary to popular belief, we found no substantial evidence that alterations in procurement rules led to higher unit prices for government procurements.

The final chapter focuses on the role of direct communication between the government and taxpayers during a tax amnesty initiative in Santa Fe, Argentina. Refining traditional communication methods for clarity and directness enhanced taxpayers' grasp of the amnesty's benefits. In our sample of over 54,000 taxpayers, those exposed to these redesigned messages were notably more responsive. However, while these communications contributed to a surge of up to 8% in tax collections among the targeted group, they also had an unintended consequence—a noticeable decline in compliance among other taxpayers. This indicates that while elucidating tax incentives can yield immediate gains, it could potentially hamper long-term tax compliance.