Correcting Market Failure Due to Interdependent Preferences: When Is Piecemeal Policy Possible?
Allowing for general utility interdependence and agent heterogeneity, we characterize taxes that will generate first best solutions in markets. We show the equivalence of tax corrections derived from the Marshallian and compensated demand approaches. Next we analyze the conditions that are required for the market failure to be corrected by: <link rid="m2">(1)</link> specific indirect ad valorem taxes on commodities, <link rid="m3">(2)</link> the same proportional tax rate on every commodity, and <link rid="m4">(3)</link> a proportional income tax rate on each individual. The conditions are related to the restrictions necessary to have H synthetic consumers without externalities who replicate behavior of individuals with externalities. Copyright 2007 Blackwell Publishing, Inc..
Year of publication: |
2007
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Authors: | RANDON, EMANUELA ; SIMMONS, PETER |
Published in: |
Journal of Public Economic Theory. - Association for Public Economic Theory - APET, ISSN 1097-3923. - Vol. 9.2007, 5, p. 831-866
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Publisher: |
Association for Public Economic Theory - APET |
Saved in:
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