Working papers of faculty, affiliated researchers and students at the Department of
Economics, University of California at Santa Barbara.
This paper shows that if workers have identical wealths, abilities, and preferences then a draft lottery is Pareto superior to a voluntary army. It also shows that if being a civilian is a “normal good”, then the optimal pay schedule will be such that people prefer not being chosen for the army. The paper shows how this idea extends to occupational choice in general and shows that pure gambles taken prior to occupational choice can substitute for lotteries that determine one’s occupation. The paper repairs what I think is a major flaw in standard general equilibrium theory, which assumes away the nonconvexity of preferences that follows from the discreteness of occupational choice.
This paper argues that since the supply of oil in the ground is inelastic, the incidence of a sales tax on oil, maintained forever at a fixed rate, would fall entirely on the oil-suppliers. In the world economy, however, the elasticity of supply of oil to a single country depends on that country's imports as a share of world output and on the elasticity of demand for that country. The paper calculates optimal tax rates for a country as a function of these variables and estimates optimal oil tax rates for the U.S., for some OECD countries separately, and for the U.S. plus the OECD collectively. Current U.S. tax rates are shown to be far below optimal values.