community based tradable permits for localized pollution this paper considers the assignment of tradable permits representing property rights of an environmental good to community members who are harmed by pollution generated by firms these community members can in turn sell permits to polluters according to their personal preferences for a special case with a sole household market transactions between the household and polluters achieve an efficient pollution level however for a group of households the decentralized market solution fails to yield social efficiency because of competitive consumption of the environmental goods we design a revenue sharing mechanism akin to unitization under which market transactions also achieve efficient resource allocation importantly in some cases efficiency can be achieved even when regulators are ignorant of the private valuation of the environmental good

de gustibus non est taxandum heterogeneity in preferences and optimal redistribution abstract the prominent but unproven intuition that preference heterogeneity reduces redistribution in a standard optimal tax model is shown to hold under the plausible condition that the distribution of preferences for consumption relative to leisure rises in terms of first order stochastic dominance with income given familiar functional form assumptions on utility and the distributions of ability and preferences a simple statistic for the effect of preference heterogeneity on marginal tax rates is derived numerical simulations and suggestive empirical evidence demonstrate the link between this potentially measurable statistic and the quantitative implications of preference heterogeneity for policy

effluent regulation and long run optimality a regulator faced with free entry of firms is concerned not only with the implications of public policy for the discharges from a representative firm but also with the total pollution observed at the long run market equilibrium the regulator must take into account not only the effects of regulations upon the net marginal returns of the firm but must also consider the total profit of the firm and incentives for entry and exit this paper shows that effluent charges and tradeable effluent permits lead to long run optimality with entry of small firms the difference between firm payments and environmental damages is interpreted as the rent accruing to the environmental resource this result applies only to the competitive case with small polluters the analysis presented here allows a comparison and clarification of the literature on small and large polluters in a multi input framework with social damages dependent upon total effluents effluent charges are shown here to result in socially optimal entry confirming an assertion of baumol and oates 2 p 179 fn 161 and the important result of schulze and d arge 15 by taking average as well as marginal damages into account the effluent charge results in optimal firm scale levels and the correct input mix at the free entry market equilibrium the firm subject to an effluent tax will operate above or below the private minimum efficient scale depending upon whether average external costs exceed or are less than marginal external costs since public policy to reduce effluents is often directed at reducing the effluentgenerating activity some policy recommendations include a tax on the final output of the polluting firm in some theoretical analyses a relation between the output of the firm and the effluent level is identified and a pigouvian output tax is applied this approach should not be followed by policymakers since an output tax does not provide firms with the correct incentives for either input substitution or market entry it is shown that while a lump sum transfer is needed to provide correct entry incentives when a pigouvian output tax is applied no such transfer is needed if the tax is correctly applied to effluents contrary to 5 even if optimal firm scale and i thank the referees for helpful suggestions the support of the national science foundation under grant ses 82 19121 is gratefully acknowledged any errors are my responsibility 103

a reconsideration of the twentieth century robert a mundell held his prize lecture december 8 1999 at aula magna stockholm university he was presented by lars e o svensson chairman of the prize committee this abstract was borrowed from another version of this item

avoiding an ecological regime shift is sound economic policy we extend the shallow lake model by adding the capital stock of an industry a government can mitigate the effects of pollution arising from industrial activities by imposing the requirement to abate emissions within this framework two scenarios are examined in the social optimal benchmark the social planner optimally allocates investment in the competitive equilibrium market forces determine the investment in capital but the government can still abate emissions we find that irreversible environmental regime shifts are avoided in the competitive equilibrium by means of a static level of abatement when it is socially optimal to do so

optimality of workfare with heterogeneous preferences with the standard non linear income taxation framework with heterogeneity of preferences in this paper the optimality of workfare as a screening tool is examined it is assumed that workfare does not serve as a human capital investment participation is mandatory and administrative costs are negligible imposing alternative cardinalizations on individuals utilities allows for the possibility that the government optimally redistributes income to or from high disutility of labour individuals under either case it is never optimal to impose workfare on these individuals it is also shown that non productive workfare can be an e cient policy tool in contrast to the results found in besley and coate 1995 brett 1998 and beaudry and blackorby 1997 jel classification h21 h23 optimalite du workfare en presence de preferences heterogenes l auteur examine l timalite du workfare en tant qu instrument de tamisage a l aide du cadre conceptuel traditionnel d imposition non lineaire des revenus en presence de preferences heterogenes on postule que le workfare n est pas un processus d investissement en capital humain que la participatioun est obligatoire et que les couts d administration sont negligeables quand on postule aussi des utilites cardinales differentes pour les individus il devient possible pour le gouvernement de redistribuer optimalement les revenus en faveur ou au detriment des individus pour qui le travail a une tres grande desutilite dans l un et l autre cas on montre que le workfare n est jamais une politique optimale on montre aussi que le workfare dans des activites non productives peut etre un instrument de politique publique e cient contrairement a ce qu a rment besley et coate 1995 brett 1998 et beaudry et blackorby 1997

designing economic instruments for the environment in a decentralized fiscal system designing economic instruments for the environment when external effects are important markets will be inefficient and economists have considered several broad classes of economic instruments to correct these inefficiencies however the standard economic analysis has tended to neglect important distinctions and interactions between the geographic scope of pollutants the enforcement authority of various levels of government and the fiscal responsibilities of the levels of government for example externalities generated in a particular local area may be confined to the local area or may spill over to other jurisdictions also local governments may be well informed about how best to regulate or enforce pollution control within their jurisdiction but they may not consider the effects of their actions on other jurisdictions finally the existence of locally generated waste emissions affects the appropriate assignment of both expenditure and tax responsibilities among levels of government the standard analysis therefore focuses mainly upon an aggregate or national perspective it typically ignores the possibility that the externality may be created and addressed by local governments and it does not consider the implications of decentralization for the design of economic instruments targeted at environmental problems this paper examines the implications of decentralization for the design of corrective policies that is how does one design economic instruments in a decentralized fiscal system in which externalities exist at the local level and in which subnational governments have the power to provide local public services as well as to choose tax instruments that can both finance these expenditures and correct the market failures of externalities

externalities a market model failure we focus here on a set of conceptual problems related to the accepted theory of externalities we are primarily concerned with difficulties that arise when a theoretical system is extended beyond its logical domain this is the practice in externality theory when the market model assuming independent agents is used to analyze physical interdependency the different kinds of dependencies obscure the standard use of the paretian analysis as the issues of rights and efficiency are mixed up the creation of emissions and the creation of externalities are further not held apart producing flows in the efficiency evaluations due to the interdependencies involved actions of both emitter and victim must be taken into account while searching for efficient policies finally we analyze the interrelationships between what is termed the internal structure of the market model and the annexed sphere of externalities we conclude that the accepted policy prescriptions both assume and demand no interrelationships between these two spheres we find the assumption unrealistic and inconsistent as concerns the basic foundations of the market model there are two main traditions addressing externalities the coasean and the pigovian this paper shows that both are vulnerable to the above critique thus the presumption that externality theory is now settled and coherent is seen to be without theoretical support

climate change policy what do the models tell us very little a plethora of integrated assessment models iams have been constructed and used to estimate the social cost of carbon scc and evaluate alternative abatement policies these models have crucial flaws that make them close to useless as tools for policy analysis certain inputs e g the discount rate are arbitrary but have huge effects on the scc estimates the models produce the models descriptions of the impact of climate change are completely ad hoc with no theoretical or empirical foundation and the models can tell us nothing about the most important driver of the scc the possibility of a catastrophic climate outcome iam based analyses of climate policy create a perception of knowledge and precision but that perception is illusory and misleading jel c51 q54 q58

fiscal federalism approach for controlling global environmental pollution this paper finds that optimal international carbon taxes are country specific and we can decompose a tax on a domestically produced carbon intensive commodity into a revenue tax a tax to control local atmospheric pollution and an international carbon tax it shows that an institutional arrangement for the world economy similar to the fiscal federalism in the federal countries can be useful to internalize the global externalities of atmospheric pollution

pigovian taxes which work in the small number case abstract an appropriately conceived pollution tax can achieve a pareto optimal equilibrium which is 1 stable in the presence of myopia 2 not subject to strategic manipulation even in the small number case and 3 resistant to inefficient cost shifting by the participants when transaction costs are low a considerable amount of confusion in the literature exists because different authors use different tax formulas often implicitly and different assumptions regarding conjectural behavior some of this confusion is cleared up by formally presenting various pigovian tax formulas explicitly considering whether there is cournot or stackleberg behavior and comparing the properties of the various configurations

income maintenance and labor force participation the paper studies the optimal tax subsidy schedules in an economy where the only decision of the agents is to work or not with an application to the case of france given an income guarantee provided by the welfare state the tax schedule that maximizes government revenue provides a benchmark the laffer bound above which it is inefficient to tax in fact under mild conditions a feasible allocation is second best optimal if and only if the associated taxes are lower than the laffer bound the only restriction that efficiency puts on the shape of the tax scheme is this upper laffer bound the laffer tax scheme itself can be computed from the joint distribution of the agents productivities and work opportunity costs depending on the economy it can take widely different forms and exhibit for instance negative marginal tax rates after estimating the joint distribution of productivities and work opportunity costs on french data i compute the laffer bound for two subpopulations single women and married women with two children or more quite surprisingly the actual incentives to work appear to be very close to the bound

monopoly provision of product quality and warranties an exploration in the theory of multi dimensional screening we address the monopoly problem of designing and pricing a product line of goods distinguished by different quality and warranty levels consumers vary in their evaluations of these attributes so that the problem is one of screening it is sufficiently complex that the local approach commonly used does not work instead we use new techniques for dealing with incentive constraints between nonadjacent consumer types these techniques allow us to characterize optimal allocations that may not be monotonic in particular although the more eager types of buyer do pay higher prices and yield the monopoly higher profit they may receive lower quality or lower warranty coverage we find preference restrictions that restore monotonicity concave risk tolerance implies that warranty coverage increases in type and constant absolute risk aversion implies that quality increases in type

agency and the design of welfare systems abstract transfers to the needy are administered by social workers whose job it is to tag welfare applicants to determine eligibility for disability benefits the accuracy of tagging depends on the effort of the social workers which is private information to prevent shirking and induce optimal effort costly monitoring is required using the framework of optimal non linear taxation we characterize the form of the optimal tax transfer system when the government operates a costly welfare system financed by income taxation higher income persons self select into the income tax system the needy apply for welfare if tagged they receive a disability benefit if untagged they receive general welfare benefits we characterize circumstances under which welfare recipients should or should not be induced to work the structure of the optimal tax transfer system and the optimal payment and monitoring of social workers

optimal disability insurance with unobservable skill heterogeneity abstract this paper studies the u s income tax and disability insurance systems in a unified framework with relevant private information and a general social welfare function to that end i develop a dynamic model in which agents differ in labor productivity and disability status which are both private information the optimal allocation can exhibit negative marginal labor income tax rates for high skilled individuals but zero for low skilled individuals which is contrary to standard results also i find that a reform to the optimal system in the calibrated model would significantly improve the u s system the welfare gains amount to a 3 48 percent increase in consumption with a utilitarian social welfare function which might be larger with a non utilitarian function better insurance for people in bad states and reduced intratemporal distortions account for almost all the welfare gains however intertemporal distortions do not appear to play a major role

how fast should we graze the global commons unlike the vast preponderance of planets earth has been bequeathed a hospitable environment in which to thrive up to now man s activities have affected this environment negligibly scientists are becoming convinced however that release of carbon dioxide co2 from combustion of fossil fuels will lead to a significant modification of the global climate see woodwell how should we think about such a destruction of our heritage should it be treated as anathema like bondage or should the pace and extent of use of our global commons be subject to the same reasoned balancing of costs and benefits as other economic activities the present paper takes the second approach asking how fast the global economy should allow a buildup of atmospheric co2 the first section reviews the current scientific knowledge on this subject while the second puts this into an optimal growth framework the third section then presents a numerical example while the last presents some realistic policy views on the subject this abstract was borrowed from another version of this item

free riding carbon treaties and trade wars the role of domestic environmental policies this paper uses a calibrated general equilibrium model of north south trade with carbon emissions to explore the strategic open economy implications of price and quantity based instruments for co2 emission reduction we compute non cooperative environmental and trade policy equilibria and nash bargaining outcomes in environmental policies with side payments of cash results show that quotas can lead to higher internalization levels in a non cooperative zero tariff equilibrium in comparison with emission fees if tariffs are also chosen non cooperatively the form of policy instrument used affects equilibrium tariffs with quotas leading to lower trade barriers particularly under a regional carbon treaty

sharing the cost of global warming due to meteorological factors the distribution of the environmental damage due to climate change bears no relationship to that of global emissions we argue in favor of osetting this discrepancy and propose a global insurance scheme to be ncanced according to countries respon sibility for climate change because ghg decay very slowly we argue that the actual burden of global warming should be shared on the basis of cumulated emissions raher than sharing the expected costs of actual emissions as in a pigovian taxation scheme we characterize new versions of two well known cost sharing schemes by adapting the responsibility theory of bossert and fleurbaey 1996 to a context with externalities j e l classi cation d62 d63 q54

optimal redistribution when different workers are indistinguishable using the standard non linear income and commodity taxation framework this paper examines the optimal policy to be adopted when the same labor disutility can receive two opposite interpretations taste for leisure and activity limitation in the absence of complete information about individual characteristics an income tax does not allow to distinguish lazy from handicapped individuals one may however rely on a combination of commodity and income taxes to redistribute from the former to the latter when they differ in their preferences for commodities

optimal incentives for labor force participation abstract optimal taxation is analyzed under a rawlsian criterion in an economy where the only decision of the agents is to participate or not to the labor force the model allows for heterogeneity both in the agent s productivities and aversions to work at a first best optimal schedule the marginal agent who decides to work pockets all of her productivity while being just compensated for her work aversion when the planner does not observe work aversion financial compensation for work is lower than productivity theory puts little restrictions on the shape of the optimal tax schedules the usual first order conditions involving the elasticities of participation only apply for sufficiently regular economies we qualitatively show how the optimal incentive schemes depend on the underlying structure of the preferences 100 marginal tax rates or subsidies to work are related to specific features of the economies

viewpoint innovations in the theory and practice of redistribution policy we present a survey of key results from second best optimal redistribution theory and their implications for tax transfer policy the core results include the corlett hague theorem the deaton conditions the production efficiency theorem the atkinson stiglitz theorem and the mirrlees saez characterization of the optimal non linear income tax system these have been augmented in recent years by optimal participation tax rates the implications of involuntary unemployment the use of unconventional instruments such as minimum wages in kind transfer and workfare and the optimal taxation of capital income and bequests l auteur presente un survol des principaux resultats theoriques de la redistribution optimale de second ordre et de leurs implications pour les politiques d imposition et de transferts les resultats fondamentaux incluent le theoreme de corlett hague les conditions de deaton les theoremes d efficacite en production le theoreme d atkinson stiglitz ainsi que la caracterisation du systeme optimal d imposition non lineaire du revenu a la mirrlees saez ces derniers resultats ont ete enrichis au cours des dernieres annees par certains autres portant sur les taux d imposition decoulant des allocations conditionnelles les implications du chomage involontaire l usage d instruments non conventionnels tels que le salaire minimum les transferts en nature le workfare ainsi que l imposition optimale des revenus du capital et des legs ces resultats sont exposes et leurs implications pour les politiques d imposition et de transferts sont discutees

welfare work requirements with paternalistic government preferences work requirements in means tested transfer programmes have grown in importance in the us and in some other countries the theoretical literature which considers their possible optimality generally operates within a traditional welfarist framework where some function of the utility of the poor is maximised here we consider a case where society instead has preferences over the actual work allocations of welfare recipients optimality of work requirements is shown to be possible but depends on the accuracy of the screening mechanism which assigns work requirements numerical simulations show that accuracy must be high for optimality earnings subsidies may also be optimal work requirements in means tested or welfare programmes have seen a resurgence in the last twenty years in the us and in a few european countries these requirements generally stipulate that benefit recipients must work or engage in some work like activity for some minimum number of hours each week most economists who have studied the

taxes and employment subsidies in optimal redistribution programs this paper explores how to optimally set taxes and transfers when taxation authorities 1 are uninformed about individuals value of time in both market and non market activities and 2 can observe both market income and time allocated to market employment we show that optimal redistribution in this environment involves distorting market employment upwards for low wage individuals through decreasing wage contingent employment subsidies and distorting employment downwards for high wage individuals through positive and increasing marginal income tax rates in particular we show that whether a person is taxed or subsidized depends primarily on his wage with the optimal program involving a cut off wage whereby workers above the cutoff are taxed as they increase their income while workers earning a wage below the cutoff receive an income supplement as they increase their income finally we show that the optimal program transfers zero income to individuals who choose not to work

minimum wage legislation and unemployment insurance as instruments for redistribution the use of minimum wages and unemployment insurance as instruments for redistributing income is analyzed the government is assumed to be able to implement an optimal income tax in an economy consisting of two types of individuals who differ in ability the effect of introducing a minimum wage which induces involuntary unemployment will be to improve social welfare under weak conditions circumstances under which combining unemployment insurance with the minimum wage will be welfare improving are also considered

externalities in a regulated industry the aircraft noise problem airline noise is an externality in the traditional sense of being a byproduct of normal economic activity it affects the population around airports in single event bundles and cumulatively the transient nature of noise itself is unlike most other externalities as with the others however general improvements in technology and increases in population have made the situation more difficult to tolerate the combination of these things has led to a critical situation for the affected population since it involves its physical and mental health from among the various methods of dealing with externalities we choose the effluent charge scheme it generally allows each firm to incorporate the environmental standard into its marginal operating choices if each firm makes efficient decisions then the cost to society of achieving an environmental standard will be a minimum in this paper there are two modifications of the traditional charge scheme one is that because of the well known difficulties in specifying and estimating social costs we use the estimated direct noise abatement costs of achieving the environmental standard the second is that airlines cannot be necessarily thought of as cost minimizers the charges used for the control of airline noise are generated as shadow prices in a simple linear programming model solution to the problem involves choosing a mix of noise abating options that achieves proposed environmental standards at least cost additional bounds on the problem are limitations on service reductions and rate of return ror oni investment regulation the data sources used for the program were generally fragmentary and incomplete for our purposes after calculating a noise charge for a hypothetical airport we discuss the implementation and ramifications of the charge plan in the regulated airline industry included is a discussion of the link between noise abatement and fuel consumption

the optimal taxation of unskilled labor with job search and social assistance abstract in order to explore the optimal taxation of low skilled labor we extend the standard model of optimal nonlinear income taxation in the presence of quasi linear preferences in leisure by allowing for involuntary unemployment job search and an exogenous welfare benefit in trading off low skilled employment against work effort of higher skilled workers the government balances distortions on the search margin with those on work effort higher welfare benefits typically reduce taxes paid by low skilled workers and raise marginal tax rates throughout the skill distribution

carbon abatement in the fuel market with biofuels implications for second best policies a carbon tax on fuel would penalize carbon intensive fuels like gasoline and shift fuel consumption to less carbon intensive alternatives like biofuels since biofuel production competes for land with agricultural production a carbon tax could increase land rents and raise food prices this paper analyzes the welfare effect of a carbon tax on fuel consisting of gasoline and biofuel in the presence of a labor tax with and without a biofuel subsidy the market impacts of a carbon tax are also compared with that of a subsidy findings show that if a carbon tax increases biofuel demand the tax interaction effect due to higher fuel prices is exacerbated by higher land rent and food prices and greater erosion of the carbon tax base thus the second best optimal carbon tax for fuel is lower with biofuel in the fuel mix especially if biofuel is subsidized

the effect of production versus consumption based emission tax under demand uncertainty abstract emission tax is an instrument widely adopted by countries and regions to incentivize emission abatement by emission intensive firms including manufacturers however policies differ in how they allocate emission responsibilities among stakeholders for example the chile emission tax directly penalizes manufacturers for the emissions they generate during their production production based emission tax whereas the sweden electricity emission tax penalizes the consumption of electricity rather than its production consumption based emission tax these two methods have potentially varying implications on manufacturers profits their emission abatement decisions as well as the resulting emission levels especially when demand uncertainty is involved in this paper we investigate the impact of the two distinct methods by studying a profit maximizing manufacturer facing stochastic demand under either production or consumption based emission tax the manufacturer s optimal decisions on its selling price production quantity and emission abatement investment are derived perhaps surprisingly we show that under either tax it is possible for an increase in the emission tax to discourage the manufacturer from investing in emission abatement the impact of tax rate abatement technology efficiency and demand uncertainty on the manufacturer s profitability and abatement decision are also studied interestingly higher demand uncertainty may motivate the manufacturer to invest more in emission abatement under production based emission tax using a numerical example of an electricity power generator we offer further insights into the comparison between the two taxes and find that there exist cases for either tax to dominate the other in terms of both profit and emissions

production uncertainty and pollution there has been considerable interest in two sector models in which the production of one of the goods is subject to uncertainty the major papers in this area are by rothenberg and smith 13 batra 1 britto 3 diamond 5 mills 12 and harford and park 8 in the latest of these papers harford and park 8 41 build on a model in mills 12 to show that if constant relative risk aversion r which is mathematically analogous to the pratt arrow measure is less than exceeds or equal to unity the direction of efficient resource flow under uncertainty as compared to certainty is away from the risky sector toward the risky sector or unchanged respectively in their model as in mills 12 the preferences of consumers are represented by a community expected utility function in the present two sector model the risky sector is an industry that is adversely affected by air pollution which is a by product of production in the other industry although there is a deterministic relation between the output and emissions of the polluting stable sector the damage caused to the other sector as a result of any given level of emissions depends upon random variables such as mixing height and wind velocity and is therefore stochastic it is not intuitively obvious whether the results of harford and park 8 hold if the uncertainty in the risky sector is the consequence of production in the stable sector in fact there is substantial dissimilarity in the results if the measure of risk aversion r is less than unity the efficient direction of resource flow is generally though not always toward the risky polluted sector if r equals unity the results also differ with resources shifting under uncertainty in the direction of the risky polluted sector only if r exceeds unity are the results always the same in both models with resources flowing toward the risky sector this paper presents the marginal condition such that under uncertainty the optimal combination of outputs includes less of the stable polluting good and more of the risky pollution sensitive good than would be the case if pollution damage were anticipated with certainty if this marginal condition does not hold the risk averse community may prefer either more or less of the polluting good a narrowed interpretation of the marginal condition is then used to predict the special case in which the efficient flow of resources under uncertainty is toward the polluting sector

the economics of renewable energy support abstract this paper uses theoretical and numerical economic equilibrium models to examine optimal renewable energy re support policies for wind and solar resources in the presence of a carbon externality associated with the use of fossil fuels we emphasize three main issues for policy design the heterogeneity of intermittent natural resources budget neutral financing rules and incentives for carbon mitigation we find that differentiated subsidies for wind and solar while being optimal only yield negligible efficiency gains policies with smart financing of re subsidies which either relax budget neutrality or use polluter pays financing in the context of budget neutral schemes can however approximate socially optimal outcomes our analysis suggests that optimally designed re support policies do not necessarily have to be viewed as a costly second best option when carbon pricing is unavailable

international liquidity in a multipolar world today s global monetary and financial system to a remarkable extent continues to rely on the u s dollar for international liquidity this reflects the currency s historic role the liquidity of american financial markets and the absence of alternatives but with the emergence of emerging markets the capacity of the united states to provide safe assets will be outstripped by the growth of international transactions it is thus likely that other large economies presumably europe and china will eventually join the united states as sources of international liquidity and that other currencies will come to share the dollar s reserve currency status

externality regulation and the monopoly firm abstract differences in strategic assumptions lead to predictable variations in the conclusions one may draw the formal theory of monopoly power and externalities reflects this variability in assumptions and conclusions this paper contains a unified model of monopoly power marketable product output and externality abatement

steering the climate system using inertia to lower the cost of policy common views hold that the efficient way to limit warming to a chosen level is to price carbon emissions at a rate that increases exponentially we show that this hotelling tax on carbon emissions is actually inefficient the least cost policy path takes advantage of the climate system s inertia to delay reducing emissions and allow greater cumulative emissions the efficient carbon tax follows an inverse u shaped path and grows more slowly than the hotelling tax economic models that assume exponentially increasing carbon taxes are overestimating the cost of limiting warming overestimating the efficient near term carbon tax and overvaluing technologies that mature sooner

optimal non linear income taxation for the alleviation of income poverty there has been much discussion recently of structuring tax and transfer programs to ensure that resources go to the poor with minimal leaks to the nonpoor the poor have no incentive to earn income with 100 percent marginal tax rates but how high or low the marginal rate of taxation should be and how they should vary with income is a complex issue and opinions vary social security schemes that withdraw benefits represent an extremely high effective marginal tax rate other schemes call for relatively low marginal tax rates at the bottom of the income distribution which tax transfer schedule does most to reduce poverty the issue is one of optimal nonlinear income taxation the authors show that one of the key theoretical results of the welfarist literature is overturned if it is desirable for everybody to work the optimal marginal tax rate on the very poorest individuals is strictly negative they argue that the nonwelfarist perspective points toward lower marginal tax rates in the lower part of the income distribution than does the welfarist perspective but numerical simulations suggest that the effect is of limited quantitative significance using conventional functional forms and parameter values optimal marginal tax rates on the poor are in the 60 70 percent range

supply side hysteresis the case of the canadian unemployment insurance system abstract this paper presents results from a 1971 natural experiment carried out by the canadian government on the unemployment insurance system at that time the generosity of the ui system was increased dramatically we find some evidence that the propensity to collect ui increases with a first time exposure to the new ui system hence as more individuals experience unemployment their lifetime use of the system increases this supply side hysteresis effect may explain why unemployment has steadily increased over the 1972 1992 period even though the generosity of unemployment insurance did not

oil prices and financial stress a volatility spillover analysis this paper examines whether there is a volatility transmission between oil prices and financial stress by means of the volatility spillover test we employ wti crude oil prices and cleveland financial stress index for the period 1991 2014 and divide the sample into pre crisis in crisis and post crisis periods due to the downward trend in oil price in 2008 the volatility model estimations indicate that oil prices and financial stress index are dominated by long run volatility the volatility spillover causality test supports evidence on risk transfer from oil prices to financial stress before the crisis and from financial stress to oil prices after the crisis the impulse response analysis shows that the volatility transmission pattern has similar dynamics before and after the crisis and is characterized by higher and long lived effects during the crisis our results have implications for both policy makers and investors and for future work

a reduced form optimal nonlinear income tax problem abstract for a finite population with quasilinear preferences it is shown how mirrlees optimal nonlinear income tax problem can be simplified to a reduced form problem involving only the allocation of the consumption good this result is a finite version of a proposition established in the continuum by s lollivier and j c rochet

unemployment insurance and job durations seasonal and non seasonal jobs the authors use regional and individual variation in unemployment insurance ui parameters to estimate the impact of ui incentives on job durations in doing so they distinguish between seasonal and nonseasonal jobs the authors find evidence of substantial tailoring of job durations to ui incentives in seasonal but not in nonseasonal jobs even for seasonal jobs adjusting ui parameters has small impacts on average job duration except in high unemployment regions increasing the ui entrance requirement leads to some job lengthening but also to the creation of more very short jobs

providing adequate economic incentives for bioenergies with co2 capture and geological storage abstract knowing that carbon capture and storage ccs could play an important role in reducing emissions it is important to have a good understanding of this role and the importance of environmental policies to support carbon capture and geological storage from bioenergies beccs to date ccs technologies are not deployed on a commercial level and policy instruments should be used to provide incentives to firms to use these technologies to reduce pollution the aim of this paper is to compare the cost efficiency of several incentive based instruments a fossil fuel tax an emissions tax a cap and trade system and a subsidy on captured emissions needed to spur the adoption of ccs and beccs using a dynamic general equilibrium model this type of model has become the standard for assessing economy wide impacts of environmental and technological policies the study shows that beccs will be deployed only if a specific subsidy per unit of biomass emissions captured with a ccs technology is available we show also that the two most cost efficient instruments for achieving a given emissions reduction target are a specific subsidy that rewards captured emissions and a carbon tax whose revenues are recycled to subsidize beccs

golden fetters the gold standard and the great depression barry eichengreen oxford university press new york 1992 pp xix 448 39 95

participation constraints in adverse selection models abstract this paper characterizes the optimal contract offered by an uninformed principal to an informed agent when the latter s reservation utility depends on his type the informational rent is nonmonotonic so that interior types may have a vanishing rent or be excluded from trade the paper identifies conditions for the optimal contract to be separating to be nonstochastic and to induce full participation it also discusses the nature of the solution when bunching occurs the results are applied to nonlinear pricing under price cap regulation and bypass competition and to competition in nonlinear pricing journal of economic literature classification numbers d82 d42 d23 d78 l51 l15

optimal redistribution a life cycle perspective abstract in this paper i characterize the optimal redistribution policy in a simple life cycle framework with both an intensive and an extensive margin of labor supply the extensive margin corresponds to the choice of a retirement age the optimal allocation cannot be implemented in a decentralized economy by a standard non linear income tax alone it can however be implemented by a history dependent social security system which redistributes resources across agents a calibration of the model to the u s economy reveals that the retirement age should optimally be sharply increasing in productivity and that implementing the optimal life cycle redistribution policy can generate large social welfare gains

determining the social cost of carbon under damage and climate sensitivity uncertainty this article quantifies the impact on optimal climate policy of both damage elasticity and equilibrium climate sensitivity uncertainty under separable preferences for risk and intergenerational inequality the primary findings are as follows 1 such preferences can depress the social cost of carbon scc when calibration aims at matching actual economic outcomes countering the prevailing view that the scc is greater with separable than with conventional entangled preferences 2 damage elasticity uncertainty has larger effects on climate policy than equilibrium climate sensitivity uncertainty even under high impact tail risk of the latter 3 risk aversion decisively strengthens optimal climate policy under joint damage and climate sensitivity uncertainty than with a single source of uncertainty alone indeed failing to account for the interaction between damage and climate sensitivity uncertainty underestimates the cost of climate change by more than us dollars 1 trillion

pigou and coase a mathematical reconciliation abstract this paper provides a rigorous statement of the coase theorem and establishes a formal equivalence between abstract allocative mechanisms attributed to coase and pigou the model proceeds from output functions that reduce to production functions in special cases thereby capturing effects that are obscured by conventional production and cost functions the model also emphasizes fundamental differences in the characteristics of inputs particularly land that are implied in the construction of externality stories finally the model embodies a clear distinction between local e g nuisance and global e g pollution externalities the coase theorem as stated is valid only in the former case

optimum income taxation and layoff taxes this paper analyzes optimum income taxation in a model with endogenous job destruction that gives rise to unemployment it is shown that optimal tax schemes comprise both payroll and layoff taxes when the state provides public unemployment insurance and aims at redistributing income the optimal layoff tax is equal to the social cost of job destruction which amounts to the sum of unemployment benefits that the state pays to unemployed workers and payroll taxes that the state does not get when workers are unemployed

a comparison of tax bases for a personal tax tax bases for a personal tax are compared in this paper it is found that the potential welfare gains of moving from a linear affine tax on labor earnings to a linear affine tax on wage rates seem to be larger than the potential gains of moving from a head tax to an earnings tax it is also shown that for the common optimal taxation model utility levels and ability as measured by wage rates are inversely related at the first best optimum a development of the model so that a positive relationship between utility and ability results is suggested

optimal taxation in the extensive model abstract we study optimal taxation under extensive preferences the agents utilities are constant for positive actions up to a maximal productivity level utilities may be discontinuous at the origin reflecting fixed costs of participation allowing for general distributions of work opportunity costs and productivity and for income effects we characterize optimal incentive compatible tax schedules we then give sufficient conditions for society to desire redistribution when these conditions hold upward distortions of the financial incentives to work can only occur for low skilled workers such upwards distortions are indeed always present when the fixed participation costs are pecuniary

taking time for the environment on timing and the role of delays in environmental and resource economics ecosystem transformation and climate change evolve over long time scales the effects of the economic decisions on the natural environment are also of a long run character because they relate to investment decisions and capital stocks at the same time the economy is short sighted and subject to different kinds of market failures the time it takes to notice the changes and adequately address the associated problems affects the dynamics and inertia of the process we discuss some recent contributions and new research questions that deal with time and timing in environmental and resource economics

optimal taxes on fossil fuel in general equilibrium we analyze a dynamic stochastic general equilibrium dsge model with an externality through climate change from using fossil energy our central result is a simple formula for the marginal externality damage of emissions or equivalently for the optimal carbon tax this formula which holds under quite plausible assumptions reveals that the damage is proportional to current gdp with the proportion depending only on three factors i discounting ii the expected damage elasticity how many percent of the output flow is lost from an extra unit of carbon in the atmosphere and iii the structure of carbon depreciation in the atmosphere thus the stochastic values of future output consumption and the atmospheric co2 concentration as well as the paths of technology whether endogenous or exogenous and population and so on all disappear from the formula we find that the optimal tax should be a bit higher than the median or most well known estimates in the literature we also formulate a parsimonious yet comprehensive and easily solved model allowing us to compute the optimal and market paths for the use of different sources of energy and the corresponding climate change we find coal rather than oil to be the main threat to economic welfare largely due to its abundance we also find that the costs of inaction are particularly sensitive to the assumptions regarding the substitutability of different energy sources and technological progress

optimal income transfer programs intensive versus extensive labor supply responses this paper analyzes optimal income transfers for low incomes labor supply responses are modeled along the intensive margin intensity of work on the job and along the extensive margin participation into the labor force when behavioral responses are concentrated along the intensive margin the optimal transfer program is a classical negative income tax program with a substantial guaranteed income support and a large phasing out tax rate however when behavioral responses are concentrated along the extensive margin the optimal transfer program is similar to the earned income tax credit with negative marginal tax rates at low income levels and a small guaranteed income carefully calibrated numerical simulations are provided

minimum wage legislation as a second best policy mass unemployment is a striking phenomenon of the present economic situation of european market economies although the profession of economists has been criticized for not providing satisfactory cures it has produced a number of different explanations either complementary or contradictory for the occurrence of mass unemployment in this paper we examine the argument that unemployment is the consequence of minimum wage legislation which is socially desirable the observation of current wage legislations suggests that the above argument is broadly at least partly accepted by policy makers curiously enough a defence of this argument meeting the rigorous requirements of modern theory seems to be missing symmetrically attacks against minimum wage legislation often rely upon reasonings of dubious relevance i e the obvious remark that unemployment is a waste with first best efficiency criteria the present paper proposes a second best analysis where second best stems from informational asymmetries which prevent the implementation of lump sum transfers needed for a first best redistribution policy the question under scrutiny can be reformulated in a more precise way as follows does a second best optimal redistribution policy lead to minimum wage legislation and unemployment our elements of answer are gathered in 3 sections in section 2 the principles of the analysis of the desirability of quantity controls and existing results are recalled in section 3 the analysis of section 2 is specified to a simple prototype model for the study of linear income taxation in section 4

is it legitimate to encourage work sharing a generalization of mirrlees income taxation model is formulated in which qualifications of workers are both endogenous and observable by the government individuals differ by their unobservable abilities which simultaneously affect their disutility of labor and their cost of training in general the optimal tax schedule depends not only on income but also on its components i e wage rate or qualification and labor supply we find conditions under which it is optimal to subsidize lower qualifications or to encourage work sharing

optimal taxation with rent seeking we develop a framework for optimal taxation when agents can earn their income both in traditional activities where private and social products coincide and in rent seeking activities where private returns exceed social returns either because they involve the capture of pre existing rents or because they reduce the returns to traditional work we characterize pareto optimal income taxes that do not condition on how much of an individual s income is earned in each of the two activities these optimal taxes feature an externality corrective term the magnitude of which depends both on the pigouvian correction that would obtain if rent seeking incomes could be perfectly targeted and on the relative impact of rent seeking externalities on the private returns to traditional and to rent seeking activities if rent seeking externalities primarily affect other rent seekers for example the optimal correction lies strictly below the pigouvian correction a calibrated model indicates that the gap between the pigouvian and optimal correction can be quantitatively important our results thus point to a hefty informational requirement for correcting rent seeking externalities through the income tax code

simple rules for climate policy and integrated assessment a simple integrated assessment framework that gives rules for the optimal carbon price transition to the carbon free era and stranded carbon assets is presented which highlights the ethical economic geophysical and political drivers of optimal climate policy for the ethics we discuss the role of intergenerational inequality aversion and the discount rate where we show the importance of lower discount rates for appraisal of longer run benefit and of policy makers using lower discount rates than private agents the economics depends on the costs and rates of technical progress in production of fossil fuel its substitute renewable energies and sequestration the geophysics depends on the permanent and transient components of atmospheric carbon and the relatively fast temperature response and we allow for positive feedbacks the politics stems from international free rider problems in absence of a global climate deal we show how results change if different assumptions are made about each of the drivers of climate policy our main objective is to offer an easy back on the envelope analysis which can be used for teaching and communication with policy makers

multiproduct nonlinear pricing typically work on mechanism design has assumed that all private information can be captured in a single scalar variable this paper explores one way in which this assumption can be relaxed in the context of the multiproduct nonlinear pricing problem it is shown that the firm will choose to exclude some low value consumers from all markets a class of cases that allow explicit solution is derived by making use of a multivariate form of integration by parts in such cases the optimal tariff is cost based

externalities and fundamental nonconvexities a reconciliation of approaches to general equilibrium externality modeling and implications for decentralization abstract starrett 1972 33 and boyd and conley 1997 7 approaches to externality modeling are unified by distinguishing between producible and nonproducible public commodities nonconvexities are associated with detrimental producible public commodities but not with nonproducible public commodities in boyd and conley 1997 7 disposability properties costly or costless imply that producible public commodities are either by products e g pollution or joint products e g national defense markets fail for both beneficial and detrimental by products nonconvexities imply that price based equilibria e g pigovian tax equilibrium may not be pareto efficient foley s 1967 1970 17 18 public competitive equilibrium combines price and quantity signals with a unanimity criterion and restores the equivalence between equilibrium and efficiency

information and incentives the economics of carrots and sticks prize lecture to the memory of alfred nobel december 9 1996 this abstract was borrowed from another version of this item

banning the bulb institutional evolution and the phased ban of incandescent lighting in germany much academic attention has been directed at analysing energy efficiency investments through the lens of behavioural failure these studies have challenged the neoclassical framing of regulation which emphasises the efficiency benefits of price based policy underpinned by the notion of rational individual self mastery the increasing use of a regulatory ban on electric lamps in many countries is one of the most recent and high profile flash points in this dialectic of freedom versus the state in the public policy discourse this paper interrogates this debate through a study of electric lamp diffusion in germany it is argued that neoclassical theory and equilibrium analysis is inadequate as a tool for policy analysis as it takes the formation of market institutions such as existing regulations for granted further still it may be prone to encourage idealistic debates around such grand narratives which may in practice simply serve those who benefit most from the status quo instead we argue for an evolutionary approach which we suggest offers a more pragmatic framing tool which focuses on the formation of market institutions in light of shifting social norms and political goals in our case progress towards energy efficiency and environmental goals

optimal income taxation and job choice in this paper we study optimal income taxation when different job types exist for workers of different skills each job type has some feasible range of incomes from which workers choose by varying labor supply workers are more productive than others in the jobs that suit them best the model combines features of the classic optimal tax literature with labor variability along the intensive margin with the extensive margin approach where workers make discrete job choices and or participation decisions we find that first best maximin utility can be achieved in the second best and marginal tax rates below the top can be negative or zero

coasean bargaining in the presence of pigouvian taxation coasean arguments against the pigouvian perspective are well established a central tenet in this criticism argues that a pigouvian tax may be a source of inefficiency if parties were to bargain in the presence of a pigouvian tax allocative inefficiencies would occur the so called buchanan stubblebine turvey theorem by analyzing a coasean environment where the appropriation of property rights is costly we show coasean bargaining in the presence of a pre existing pigouvian tax may be superior this has implications for policy where dual regulatory environments exist such as regulation at the state and federal level as well as environmental liability and litigation

elements of an economic justification for municipal zoning abstract the possibility that externalities will produce a nonconvexity in the social production set limits the application of both the coase and pigou solutions for achieving an optimal allocation of land resources conditions on relative land prices are derived which indicate that external effects are strong enough to introduce a nonconvexity into the production set these conditions were not fulfilled in a sample of single family and multifamily dwellings in foster city california this does not preclude the possibility that they are fulfilled in cases of more severe external effects

partially verifiable information and mechanism design in a principal agent model with adverse selection we study the implementation of social choice functions when the agent s message space is a correspondence which depends on this true characteristic we characterize such correspondence for which the revelation principle is valid returns must not contradict easily observable elements of the taxpayer s lifestyle in this paper we present a model of two person organizations in which these considerations are important we ask whether the restrictions on fallacious statements inherent in the system are sufficient to achieve the goals of the organization we show that the optimal way of eliciting the agent s response may not be to establish incentives for truthtelling in all instances in our model there is one player the agent who observes the state of the economic system another player the principal takes an action based on the information presented to him by the agent this class of models is often referred to as the principal agent problem in the extensive and growing literature on this problem it has always been assumed that the agent could lie to the principal and therefore that he had to be properly motivated to act at least partially in the principal s interest our formal way of modelling the partial verifiability of information is to introduce the restriction that the agent s responses must lie in a set m o that varies with the true state 0 it is assumed that this set always admits the possibility of responding with the true state the way in which the allowable response set varies with the true state is known to the principal in other respects we retain the usual principal agent formalization in particular the principal is the stackelberg leader in this game he can commit himself to choose a collective action as a function of the message transmitted by the agent whether the variation of the message space with the true observation is purely technological or whether it is induced by the severity of potential actions of the principal

green fiscal reform in sweden econometric assessment of the carbon and energy taxation scheme abstract empirical econometric assessment of environmental policy effectiveness is capable of demonstrating which tools have been helping to achieve the desired effect of reducing harmful emissions or stimulating technological change this paper employs an econometric approach to analyse the effectiveness of energy and carbon taxes in sweden the country which was one of the first to introduce a co2 tax as well as an extensive environmental tax reform the results showed that taken in isolation a co2 tax was not sufficient to result in a significant change in co2 emissions in sweden except in the case of petrol on the other hand energy taxes for coal and lpg have been statistically significantly effective it was also clear that a technological innovation in the form of development of nuclear and hydro energy played a significant role in reducing co2 emissions and higher oil price was also important in reducing national co2 emissions in sweden at the same time renewable energy excluding hydro a more recent innovation has not been a statistically significant driver of co2 emissions reduction perhaps due to the fact that wind and solar play a much lesser role in sweden at the moment the net electricity imports from other countries have contributed positively towards reducing co2 emissions in sweden while the use of coal and biomass tended to increase co2 emissions compared to the ex ante modelling results from the literature review the findings confirm the role of environmental taxation as a viable policy instrument effective in reducing co2 emissions in sweden although point towards a more nuanced picture the paper raises important policy questions focused on the effectiveness of environmental policy tools

targets for global climate policy an overview a survey of the economic impact of climate change and the marginal damage costs shows that carbon dioxide emissions are a negative externality the estimated pigou tax and its growth rate are too low to justify the climate policy targets set by political leaders a lower discount rate or greater concern for the global distribution of income would justify more stringent climate policy but would imply an overhaul of other public policies catastrophic risk justifies more stringent climate policy but only to a limited extent

employment hours of work and the optimal taxation of low income families the optimal design of low income support is examined using a structural labour supply model the approach incorporates unobserved heterogeneity fixed costs of work childcare costs and the detailed non convexities of the tax and transfer system the analysis considers purely pareto improving reforms and also optimal design under social welfare functions with different degrees of inequality aversion we explore the gains from tagging and also examine the case for the use of hours contingent payments using the tax schedule for lone parents in the uk as our policy environment the results point to a reformed non linear tax schedule with tax credits only optimal for low earners the results also suggest a welfare improving role for tagging according to child age and for hours contingent payments although the case for the latter is mitigated when hours cannot be monitored or recorded accurately by the tax authorities acknowledgements this study is part of the research program of the esrc centre for the microeconomic analysis of public policy at the ifs we thank stuart adam mike brewer roger gordon guy laroque ian preston emmanuel saez florian scheuer seminar participants at harvard mit jerusalem niesr sole and participants in the mirrlees review the editor and the referees for helpful comments we are alone responsible for all errors and interpretations

negative marginal tax rates and heterogeneity the bulk of the theory of optimal taxation recommends that the marginal tax rate be everywhere positive labor supply is distorted downwards compared with laissez faire the conditions under which the result holds continuous labor supply or intensive margin unobserved productivity constant opportunity cost of work utilitarian planner with a redistributive motive towards lower incomes have been thoroughly investigated jesus seade 1977 1982 ivan werning 2000 martin f hellwig 2007 the purpose of the present paper is to describe how negative marginal tax rates can be optimal keeping with the intensive set up largely studied in the literature when there are multiple dimensions of heterogeneity indeed james a mirrlees 1976 in its section iv indicates along a line that will be pursued further here that the sign of the marginal tax rate cannot be predicted when the agents in the economy differ along several dimensions of heterogeneity workers differ in both their productivities and opportunity costs of work under utilitarianism heterogeneity comes into play through its impact on cardinal utilities how social weights or marginal utilities of income vary with income determines the shape of the optimal tax scheme conditionally on income utility and more importantly its derivative with respect to income may either decrease or increase with work opportunity costs this may vary according to circumstances depending on whether the cost is associated with poor living conditions i e a handicap or reflects a taste for leisure or opportunities outside the labor market such as gardening at home or black market activities for a given income the social weight is proportional to the expected marginal utilities where the expectation is taken over the distribution of work opportunity costs at this income level therefore the social weight curve depends on both the specification of the cardinal utility function and on how the distribution of work opportunity costs changes with income the fact that heterogeneity can blur the redistribution motive through the possible correlation between ability and onerousness of work has been discussed in models where agents have a finite number of types a pioneer work is that of joseph e stiglitz 1982 who shows that the high skilled individual should face a negative marginal tax rate if the low skilled individual s upward incentive constraint binds which is the case if social weights are increasing in type the importance of this observation for policy was pointed out in katherine cuff 2000 who is the first to explicitly link social weights to the opportunity cost of work using alternative choices of cardinal utilities in a model with four types combining two values for productivity and two values for the cost of work robin boadway et al 2002 showed how it can be optimal to have binding upward incentive constraints when high opportunity costs are associated with small social weights

experimentation and project selection screening and learning firms must strike a delicate balance between the exploitation of well known business models and the exploration of risky untested approaches in this paper we study financial contracting between an investor and a firm with private information about its returns from exploration and exploitation the investor optimal mechanism offers contracts with different tolerance for failures to screen returns from exploitation and with different exposure to the project s revenues to screen returns from exploration we derive necessary and sufficient conditions for private information about returns from exploration to have zero value to the firm when these conditions fail private information about exploration may even decrease the firm s payoff

the inefficiency of private adaptation to pollution in the presence of endogenous market structure the paper considers an industry where production costs rise due to pollution but where this effect can be partially off set by investing in adaptation as a private good the focus is not on external effects but industries where economies of scale are introduced from adapting to pollution the structure of the resulting oligopolistic market is endogenous since the level of adaptation is chosen by the firms the analysis of externalities usually disregards defensive or adaptation measures with a few exceptions that point to considerable complications the present debate on adaptation to climate change shows the importance of understanding defensive measures i show that the market failure caused by economies of scale leads to production costs above the social optimum i e to under adapation when pollution increases adaptation only increases if demand is price inelastic otherwise welfare loss from market failure decreases with pollution the total welfare loss is only convex if demand is price inelastic and the influence of pollution on production costs is stronger than the influence of adaptation concave welfare loss has crucial implications for abatement policies

the design of income maintenance programmes this paper provides a comprehensive treatment of a basic income maintenance problem for a group of individuals who differ in their income generating abilities it stresses the impact that imperfect information about such abilities has on programme design the analysis serves two purposes first we are able to unify the theoretical literature on the income maintenance problem second we examine the impact of allowing the government to impose workfare on recipients of income support in addition to being of policy interest this is a theoretically challenging problem since it requires solving a multi dimensional screening problem the solution that we find is strikingly simple it separates the poor into two categories with the lower income groups subject to workfare while facing a 100 marginal tax rate on earnings the second group does no public work and is offered a benefit schedule which taxes earnings at a lower rate

controlling the monopolistic polluter nihilism or eclecticism abstract this paper is concerned with the consequences of pollution control when the polluter is a monopolist who can choose between abating pollution by reducing output and by adopting a less polluting technology it is suggested that the risk of welfare losses resulting from control policy is lower when technology is flexible than when it is rigid nevertheless some risk does remain so the paper concludes with a discussion of the possible use of selective control instruments to keep the risk to a minimum

a note on externalities and taxation the purpose of this paper is to explore the distributional aspects of a tax that is imposed in order to correct the detrimental effects of a production externality in the framework of a two sector general equilibrium model we show that harberger s classic results of tax incidence may change considerably because of the presence of the externality we also show that the tax is effective in reducing the detrimental effect of the externality although the return of the taxed factor may rise relative to the return of the untaxed factors

human capital polarisation and pareto improving activating welfare human capital not only earns income but also is a source of direct felicity the interaction between these two motives for effort can generate multiple stationary solutions for individual household optimisation this multiplicity freezes any sufficiently unequal initial skill distribution and persistently segregates households into two separate groups one rich and educated one poor and uneducated if public goods are to be financed polarisation is typically pareto inefficient while unconditional transfers only reduce the incentive to accumulate skills activating tax transfer systems that pareto dominate any non redistributing system exist transfers are transitory and a negative marginal income tax is imposed on poor households income

optimal dynamic mechanism design with deadlines a seller maximizes revenue from selling an object in a dynamic environment with buyers that differ in their patience each buyer has a privately known deadline for buying and a privately known valuation first we derive the optimal mechanism neglecting the incentive constraint for the deadline the deadline of the winner determines the time of the allocation and therefore also the amount of information available to the seller when he decides whether to allocate to a buyer depending on the shape of the markup that the seller uses this can lead to a violation of the neglected incentive constraint we give sufficient conditions on the type distribution under which the neglected constraint is fulfilled or violated second for the case that the constraint cannot be neglected we consider a model with two periods and two buyers here the optimal mechanism is implemented by a fixed price in period one and an asymmetric auction in period two the asymmetry which is introduced to prevent the patient type of the first buyer from buying in period one leads to pooling of deadlines at the top of the type space

fundamental nonconvexities in arrovian markets and a coasian solution to the problem of externalities abstract d starrett j econ theory 4 1972 180 199 argues that the presence of externalities implies fundamental nonconvexities which cause arrow markets to fail while this is true we argue this failure is due to the structure of the arrovian markets that starrett uses and not to the presence of externalities as such we provide an extension of a general equilibrium public goods model in which property rights are explicitly treated nonconvexities are not fundamental in this framework we define a notion of coasian equilibrium for this economy and show first and second welfare theorems in this context the first welfare theorem is a type of coase theorem journal of economic literature classification numbers d62 h41