“JPMorgan Chase & Co. (JPM) asked more than 2,000 current and former employees to contribute to a settlement with the U.K.’s tax authority over their use of an offshore trust for bonus payments, according to a person briefed on the situation…..
People who used JPMorgan’s trust told the FT they were asked to participate in a so-called blind auction, in which they would volunteer to pay a tax rate of their choosing.
If the auction fails to generate enough money to fund the settlement, people who submitted less than the average bid would be excluded from the deal and face a 52 percent tax rate when the trust’s assets are liquidated, the newspaper said.
People who don’t wish to participate can try to fight the government’s demand, the person briefed on the situation said.”
The rules of the auction are not 100% clear from the article. Taken at face value, there is the possibility of multiple coordination equilibria. If I expect everyone else to contribute a lot but not enough to pay off the tax debt, then I will contribute a lot too to avoid the 52% tax. If I expect everyone to contribute a little, so will I hoping people who decided not to participate or contributed less than the average bid will bear the punishment. Finally, if I expect total contributions to exceed the tax debt, I will contribute zero. Uncertainty about everyone’s willingness to pay, deep pockets etc will generate randomness and perhaps refine equilibria but leave open the possibility of multiplicity. Also, there will be positive probability that the auction does not fully recompense the tax authorities. This is also true in mixed strategy equilibria of the complete information game.
To increase contributions and guarantee success, the auction should specify that everyone who contributes more than the average bid will escape the 52% tax if total contributions are lacking. Then, people will submit more than the average just to be safe. Then, the average expected bid will go up. Then, they’ll submit even more etc.