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Internalities and paternalism: applying the compensation criterion to multiple selves across time

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One reason to call an activity a vice and suppress it is that it reduces a person’s future happiness more than it increases his present happiness. Gruber and Koszegi (2001) show how a vice tax can increase a person’s welfare in a model of multiple selves with hyperbolic preferences across time. The present paper shows that an interself analogy of the Kaldor-Hicks compensation criterion can justify a vice ban whether preferences are hyperbolic or exponential, but subject to the caveat that the person has a binding constraint on borrowing.

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File URL: http://hdl.handle.net/10.1007/s00355-011-0625-3
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Article provided by Springer & The Society for Social Choice and Welfare in its journal Social Choice and Welfare.

Volume (Year): 38 (2012)
Issue (Month): 4 (April)
Pages: 601-615

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Handle: RePEc:spr:sochwe:v:38:y:2012:i:4:p:601-615
DOI: 10.1007/s00355-011-0625-3
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