The kitchen sink

This post is meant to capture a hodgepodge of random thoughts that might make for interesting research topics.

1) An element of athletics that exists with certainty in the real world but is difficult to model and/or predict (at least as far as my limited reading is concerned) is streaks. The idea that the performance of an individual is at times subject to persistent positive or negative outcomes that may go beyond mere chance. It seems that this type of situation can and should be modeled from a time series perspective. The production element (e.g. an at-bat in baseball) is subject to a shock that is likely an AR process. This implies that the outcome in any at-bat is partially determined by the outcome in the last at-bat (or series of at-bats). Intuitively, this makes all the sense in the world. The more persistent the shock, the longer the streak. I have to believe that someone has already worked through this type of exercise and I'm curious how the results match up to reality.

2) Continuing in the athletics world...an interesting thought occurred to me regarding marginal tax rate elasticities. The sine qua non of the wingnut conservative world is that high marginal tax rates discourage the most productive in society from, well, producing. Lowering marginal rates has the glorious effect of boosting the efforts of these productive types and the fiscal authority has money raining down upon it due to the US residing on the downslope of the Laffer curve.

Back in the real world, what would we expect from athletes faced with higher marginal tax rates? Certainly a highly productive professional athlete would be a prime candidate to exemplify this supposed elasticity? Do performances and firm profits suffer as a result of marginal tax rate increases? A host of complexities make the tractability limited -- contracting, agency, etc. However, the point I'm getting at is the strategic element that athletes and by extension, all workers use in their optimizing behavior. Alex Rodriguez is much more concerned about his pay relative to other players near his level than his absolute pay. I'm sure he'd tell you if you asked him. The inherent behavior stems from strategic concerns, not Adam Smith's invisible hand world. The pay of titans of industry would seem to follow much more closely to the strategic world I describe than Adam Smith's world. So moderately higher marginal rates will recoup a lot of revenue without losing much in the way of efficiency.

3) The corollary question to point #2 is what type of workers are most likely to be impacted by marginal tax rate changes? CEO's would not be my answer. Perhaps the average worker who is pushing up against his income band? His information about c0-workers salaries is likely lower than higher earners. Capping out vs. an income band may actually be a proxy for a marginal tax rate increase, since the workers raise will be limited by the ceiling. So he will not reap the full benefit of his individual efforts, regardless of his performance (my assumption is that there are a discrete number of nominal pay increases he could achieve with his efforts).

This line of thinking goes toward an area I think is overlooked by corporate america -- incentive effects at much lower levels. It is an iron-clad rule that results come from the superstars. Perhaps there is money being left on the table by not providing the incentives to low to mid-level employees with a lot to offer and not much reason to give any more than a standard listless 40 hour week. And I'm not talking about friggin Applebee's gift certificates as incentives...