We generalize the Diamond-Mirrlees production efficiency theorem, that there should be no taxes on sectors producing pure intermediate goods, to an environment with political economy constraints. In our economy, allocations and taxation are decided by self-interested politicians without the...

In this paper we describe how to optimally design a disability insurance system. The key friction in the model is imperfectly observable disability. We solve a dynamic mechanism design problem and provide a theoretical and numerical characterization of the social optimum. We then propose a...

In this paper, we consider an environment in which agents’ productivities are private information, potentially multi-dimensional, and follow arbitrary stochastic processes. We allow for arbitrary incentive-compatible and physically feasible tax schemes. We prove that it is typically Pareto...