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Moral Hazard and Optimal Commodity Taxation

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Author Info
Richard Arnott
Joseph Stiglitz

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Abstract

The central result of this paper is that when moral hazard is present, shadow prices in general differ from market prices. To remedy this market failure, the government should introduce differential commodity taxation. Moral hazard causes people to take too little care to prevent accidents. The corresponding deadweight loss can be reduced by subsidizing (taxing) those goods the consumption of which encourages (discourages) accident avoidance. At the constrained optimum, the sum of the deadweight losses and differential commodity taxation is minimized. Policy implications are derived and discussed.

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Publisher Info
Paper provided by Queen's University, Department of Economics in its series Working Papers with number 500.

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Length: 47
Date of creation: 1982
Date of revision:
Handle: RePEc:qed:wpaper:500

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  1. Joseph E. Stiglitz, 1988. "Pareto Efficient and Optimal Taxation and the New New Welfare Economics," NBER Working Papers 2189, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. Friedrich Breyer & Andreas Haufler, 2000. "Health Care Reform : Separating Insurance from Income Redistribution," Discussion Papers of DIW Berlin 205, DIW Berlin, German Institute for Economic Research. [Downloadable!]
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  3. Robin Boadway & Jean-Francois Tremblay, 2003. "Public Economics and Startup Entrepreneurs," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
  4. Schjelderup, Guttorm, 1990. "Reforming state enterprises in socialist economies : guidelines for leasing them to entrepreneurs," Policy Research Working Paper Series 368, The World Bank. [Downloadable!]
  5. Emmanuel Farhi & Mikhail Golosov & Aleh Tsyvinski, 2007. "A Theory of Liquidity and Regulation of Financial Intermediation," NBER Working Papers 12959, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Roger H. Gordon & Joel Slemrod, 1998. "Are "Real" Responses to Taxes Simply Income Shifting Between Corporate and Personal Tax Bases?," NBER Working Papers 6576, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Konrad, Kai A, 1999. "Privacy, Time Consistent Optimal Labour Income Taxation and Education Policy," CEPR Discussion Papers 2326, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  8. Barry Nalebuff & Andres Rodriguez & Joseph E. Stiglitz, 1993. "Equilibrium Unemployment as a Worker Screening Device," NBER Working Papers 4357, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. Gerard Russo, 1989. "Moral Hazard and Optimal Cigarette Taxation," Working Papers 198918, University of Hawaii at Manoa, Department of Economics. [Downloadable!]
  10. Luca, PANACCIONE, 2006. "Inefficiency of competitive equilibrium with hidden action and financial markets," Université catholique de Louvain, Département des Sciences Economiques Working Paper 2006049, Université catholique de Louvain, Département des Sciences Economiques. [Downloadable!]
  11. Louis Kaplow, 1993. "Government Relief for Risk Associated with Government Action," NBER Working Papers 3006, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  12. Mikhail Golosov & Aleh Tsyvinski, 2006. "Optimal Taxation with Endogenous Insurance Markets," Levine's Bibliography 784828000000000445, UCLA Department of Economics. [Downloadable!]
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  13. Louis Kaplow, 1991. "Incentives and Government Relief for Risk," NBER Working Papers 3007, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  14. Luca Panaccione, 2007. "Pareto Optima and Competitive Equilibria with Moral Hazard and Financial Markets," Topics in Theoretical Economics, Berkeley Electronic Press, vol. 7(1), pages 1358-1358. [Downloadable!] (restricted)
  15. Joseph E. Stiglitz, 1986. "Economics of Information and the Theory of Economic Development," NBER Working Papers 1566, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  16. Robin Boadway & Manuel Leite-Monteiro & Maurice Marchand & Pierre Pestieau, 2002. "Social Insurance and Redistribution," Working Papers 1004, Queen's University, Department of Economics. [Downloadable!]
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