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Myopia, regrets, and risky behaviors

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  • Pierre Pestieau

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  • Gregory Ponthiere

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Abstract

This paper examines how a government should intervene when agents make choices having long-term detrimental effects on their life expectancy. For that purpose, we consider an economy where some agents consume a sin good (reducing their survival chances) 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 will regret, but not with other behaviors. In the second-best, asymmetric information and redistributive concerns imply interferences not only with myopic behaviors, but also with impatience-based (rational) behaviors. Finally, we introduce heterogeneity in individual earnings, 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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Suggested Citation

  • Pierre Pestieau & Gregory Ponthiere, 2012. "Myopia, regrets, and risky behaviors," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 19(2), pages 288-317, April.
  • Handle: RePEc:kap:itaxpf:v:19:y:2012:i:2:p:288-317
    DOI: 10.1007/s10797-011-9188-6
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Pierre Pestieau & Gregory Ponthiere, 2012. "The Public Economics of Increasing Longevity," Hacienda Pública Española, IEF, vol. 200(1), pages 41-74, March.
    2. Pierre Pestieau & Grégory Ponthiere, 2012. "On the Policy Implications of Changing Longevity," CESifo Working Paper Series 3926, CESifo Group Munich.
    3. repec:kap:itaxpf:v:25:y:2018:i:2:d:10.1007_s10797-017-9452-5 is not listed on IDEAS
    4. Leroux, Marie-Louise & Pestieau, Pierre & Ponthière, Grégory, 2015. "Longévité différentielle et redistribution : enjeux théoriques et empiriques," L'Actualité Economique, Société Canadienne de Science Economique, vol. 91(4), pages 465-497, Décembre.
    5. Pierre Pestieau & Grégory Ponthière, 2012. "The public economics of increasing longevity," Working Papers halshs-00676492, HAL.
    6. Marie-Louise Leroux & Pierre Pestieau & Grégory Ponthière, 2014. "Longévité différentielle et redistribution : enjeux théoriques et empiriques," Working Papers halshs-01071723, HAL.
    7. Chu-chuan Cheng & Hsun Chu, 2018. "Optimal policies for sin goods and health care: Tax or subsidy?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 25(2), pages 412-429, April.

    More about this item

    Keywords

    Sin goods; Optimal taxation; Myopia; Regrets; Self-control; I18; J18; H21; H31;

    JEL classification:

    • 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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