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The standard theory of optimal income taxation under uncertainty has been developed under the assumption that … individuals maximise expected utility. However, prospect theory has now been established as an alternative model of individual … behaviour, with empirical support. This paper explores the theory of optimal income taxation under uncertainty when individuals …
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We completely characterize the set of second-best optimal “menus”of student-loan contracts in a simple economy with risky labour-market outcomes, adverse selection, moral hazard and risk aversion. The model combines structured student loans and an elementary optimal income-tax problem à la...
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