On Sat, 18 Jan 2003, Fred Foldvary wrote: > 2) The government does not know the economic rent among the basketball > teams, but it does know that the next best opportunity if he does not play > basketball is $100,000. The government taxes the income above $100,000 at, > say, 90 percent, providing an incentive for the player to accept the best > offer, but still taking most of the economic rent.
Ummm...wouldn't we rather quickly see teams stop offering wages above $100K and offering in-kind benefits instead? Think about airline price regulation. Why wouldn't we see the same thing here? The player only has to value the benefits at x>10% of their costs in order to prefer benefits to salary increases. Seems likely to be quite wasteful. How much government oversight are we going to need to prevent people from moving to provision of nonpecuniary benefits [or to value, price and tax such benefits]? Eric
