ON THE 'FREE-RIDER', CONDITIONAL PROBABILITIES, AND RECURSIVE GAMES.
PRINCETON UNIV N J ECONOMETRIC RESEARCH PROGRAM
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The problem of free-riding, which is connected with the notion of a public good or externality, is treated as a question of tax compliance. It is shown that tax evasion is largely a problem of strategy. A Bayesian model is used to deduce an optimal strategy for the inspector faced with finding the tax evader. Individual auditing of a firm is described in terms of a recursive game model inspectors game from which one obtains minimax probabilities of detecting at least one violation. This last model is extended to comprise absolute banking secrecy and obvious violations. Author
- Economics and Cost Analysis
- Operations Research