Externalities And Asymmetric Information
AbstractA reconsideration of the Pigovian theory of regulating externalities via taxation is undertaken for environments with private information. The presence of private information may have no effect on the social optimum; but when it has an impact, it is to cause a group of different agents to share the same production or consumption levels. The model developed provides an appealing characterization of when such situations transpire; they occur when the individuals who desire most to engage in some activity are the ones who society least wants to participate. Since such instances could potentially be regulated by the imposition of quantity controls, this may explain authorities' apparent predilection for quantity limits rather than tax-cum-subsidy schemes to manage many externalities. Copyright 1991, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.
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Bibliographic InfoPaper provided by University of Rochester - Center for Economic Research (RCER) in its series RCER Working Papers with number 173.
Length: 20 pages
Date of creation: 1989
Date of revision:
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Postal: University of Rochester, Center for Economic Research, Department of Economics, Harkness 231 Rochester, New York 14627 U.S.A.
externalities ; information ; taxation ; social choice;
Other versions of this item:
- Greenwood, J. & Mcafee, R.P., 1989. "Externalities And Asymmetric Information," University of Western Ontario, The Centre for the Study of International Economic Relations Working Papers 8914, University of Western Ontario, The Centre for the Study of International Economic Relations.
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