Sin Licenses Revisited
AbstractWe analyse attempts to implement personalised regulation in the form of sin licenses (O’Donoghue and Rabin 2003, 2005, 2007) to correct the distortion in the consumption of a harmful good when consumers suffer from varying degrees of self-control problems. We take into account the possibility that consumers may trade the sin good in a secondary market, and show that sin licenses induce only sophisticated individuals with low levels of self-control problems to consume optimally. The consumption of naïve individuals as well as sophisticated individuals with severe self-control problems remains too high, and welfare in equilibrium is decreasing in the level of self-control problems and non-increasing in the level of naivete. Further, we show that introducing a uniform tax on top of a system of sin licenses may improve welfare, whereas a uniform maximum quota would reduce welfare for sophisticates but may increase welfare for naives. Finally, we show that naives would benefit from a scheme where sin licenses are sold for a positive price in the primary market.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 4010.
Date of creation: 2012
Date of revision:
self-control problems; sin licenses; secondary markets;
Other versions of this item:
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
- I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- B. Douglas Bernheim & Antonio Rangel, 2005.
"Behavioral Public Economics: Welfare and Policy Analysis with Non-Standard Decision-Makers,"
NBER Working Papers
11518, National Bureau of Economic Research, Inc.
- B. Douglas Bernheim & Antonio Rangel, 2005. "Behavioral Public Economics: Welfare and Policy Analysis with Non-Standard Decision-Makers," Discussion Papers 04-033, Stanford Institute for Economic Policy Research.
- Robert Sugden, 2004. "The Opportunity Criterion: Consumer Sovereignty Without the Assumption of Coherent Preferences," American Economic Review, American Economic Association, vol. 94(4), pages 1014-1033, September.
- Cass R. Sunstein & Richard H. Thaler, 2003.
"Libertarian paternalism is not an oxymoron,"
Conference Series ; [Proceedings],
Federal Reserve Bank of Boston, vol. 48(Jun).
- B. Douglas Bernheim & Antonio Rangel, 2009. "Beyond Revealed Preference: Choice-Theoretic Foundations for Behavioral Welfare Economics-super-," The Quarterly Journal of Economics, MIT Press, vol. 124(1), pages 51-104, February.
- Haavio, Markus & Kotakorpi, Kaisa, 2011.
"The political economy of sin taxes,"
European Economic Review,
Elsevier, vol. 55(4), pages 575-594, May.
- Cremer Helmuth & De Donder Philippe & Maldonado Dario & Pestieau Pierre, 2010.
"Commodity Taxation under Habit Formation and Myopia,"
The B.E. Journal of Economic Analysis & Policy,
De Gruyter, vol. 10(1), pages 1-27, September.
- CREMER, Helmuth & DE DONDER, Philippe & MALDONADO, Dario & PESTIEAU, Pierre, . "Commodity taxation under habit formation and myopia," CORE Discussion Papers RP -2244, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- O'Donoghue, Ted & Rabin, Matthew, 2000.
"Choice and Procrastination,"
Department of Economics, Working Paper Series
qt5r26k54p, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Stefano DellaVigna & Ulrike Malmendier, 2006. "Paying Not to Go to the Gym," American Economic Review, American Economic Association, vol. 96(3), pages 694-719, June.
- Kanbur, Ravi & Pirttila, Jukka & Tuomala, Matti, 2004.
"Non-Welfarist Optimal Taxation And Behavioral Public Economics,"
127150, Cornell University, Department of Applied Economics and Management.
- Ravi Kanbur & Jukka Pirttilä & Matti Tuomala, 2006. "Non-Welfarist Optimal Taxation And Behavioural Public Economics," Journal of Economic Surveys, Wiley Blackwell, vol. 20(5), pages 849-868, December.
- Ravi Kanbur & Jukka Pirttilä & Matti Tuomala, 2004. "Non-Welfarist Optimal Taxation and Behavioral Public Economics," CESifo Working Paper Series 1291, CESifo Group Munich.
- Eliaz, Kfir & Spiegler, Ran, 2004.
"Contracting with Diversely Naive Agents,"
CEPR Discussion Papers
4573, C.E.P.R. Discussion Papers.
- Laibson, David, 1997.
"Golden Eggs and Hyperbolic Discounting,"
The Quarterly Journal of Economics,
MIT Press, vol. 112(2), pages 443-77, May.
- Mirrlees, J. A., 1976.
"Optimal tax theory : A synthesis,"
Journal of Public Economics,
Elsevier, vol. 6(4), pages 327-358, November.
- Richard H. Thaler & Cass R. Sunstein, 2003. "Libertarian Paternalism," American Economic Review, American Economic Association, vol. 93(2), pages 175-179, May.
- Paul Heidhues & Botond Kőszegi, 2009. "Futile Attempts at Self-Control," Journal of the European Economic Association, MIT Press, vol. 7(2-3), pages 423-434, 04-05.
- O'Donoghue, Ted & Rabin, Matthew, 2006.
"Optimal sin taxes,"
Journal of Public Economics,
Elsevier, vol. 90(10-11), pages 1825-1849, November.
- Vidar Christiansen & Stephen Smith, 2012. "Externality-Correcting Taxes and Regulation," Scandinavian Journal of Economics, Wiley Blackwell, vol. 114(2), pages 358-383, 06.
- Matthew Rabin & Botond Kőszegi, 2007. "Mistakes in Choice-Based Welfare Analysis," American Economic Review, American Economic Association, vol. 97(2), pages 477-481, May.
- Daniel Gottlieb, 2008. "Competition over Time-Inconsistent Consumers," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 10(4), pages 673-684, 08.
- Gruber, Jonathan & Koszegi, Botond, 2004. "Tax incidence when individuals are time-inconsistent: the case of cigarette excise taxes," Journal of Public Economics, Elsevier, vol. 88(9-10), pages 1959-1987, August.
- Cowell, Frank A., 2008. "Problems and Promise of Smart Cards in Taxation," National Tax Journal, National Tax Association, vol. 61(4), pages 865-82, December .
- Ted O'Donoghue & Matthew Rabin, 2003. "Studying Optimal Paternalism, Illustrated by a Model of Sin Taxes," American Economic Review, American Economic Association, vol. 93(2), pages 186-191, May.
- B. Douglas Bernheim & Antonio Rangel, 2008.
"Beyond Revealed Preference: Choice Theoretic Foundations for Behavioral Welfare Economics,"
NBER Working Papers
13737, National Bureau of Economic Research, Inc.
- Douglas Bernheim & Antonio Rangel, 2007. "Beyond Revealed Preference Choice Theoretic Foundations for Behavioral Welfare Economics," Discussion Papers 07-031, Stanford Institute for Economic Policy Research.
- Jay Bhattacharya & Darius Lakdawalla, 2004. "Time-Inconsistency and Welfare," NBER Working Papers 10345, National Bureau of Economic Research, Inc.
- Paul Heidhues & Botond Koszegi, 2010. "Exploiting Naivete about Self-Control in the Credit Market," American Economic Review, American Economic Association, vol. 100(5), pages 2279-2303, December.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Julio Saavedra).
If references are entirely missing, you can add them using this form.