Myopia, regrets, and risky behaviors
AbstractThis paper examines how a government should intervene when agents make, for different reasons, choices that have long term detrimental effects on their survival prospects. We consider an economy where some agents make risky choices (here sin good consumption) out of myopia, and regret their choices later on, whereas other agents make, because of their impatience, the same risky choices, which they never regret. We argue that, in the first-best, a government should only interfere with behaviors that agents regret, but not with other behaviors. In the second-best, asymmetric information and redistributive concerns imply interference not only with myopic behaviors, but also with impatience-based behaviors. Finally, we introduce heterogeneity in individual productivity, and show that the optimal tax on the sin good depends on the size of the myopic group, on the reactivity of sin good consumption to tax changes, and on the extent to which sin good consumption is correlated with labor earnings.
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Bibliographic InfoPaper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers RP with number -2452.
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Note: In : International Tax and Public Finance, 19(2), 288-317, 2012
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Other versions of this item:
- I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
- J18 - Labor and Demographic Economics - - Demographic Economics - - - Public Policy
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
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