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Regulating Altruistic Agents

  • Anthony Heyes

    (Royal Holloway, University of London)

  • Sandeep Kapur

    (Department of Economics, Mathematics & Statistics, Birkbeck)

Altruism or `regard for others' can encourage self-restraint among generators of negative externalities, thereby mitigating the externality problem. We explore how introducing impure altruism into standard regulatory settings alters regulatory prescriptions. We show that the optimal calibration of both quantitative controls and externality taxes are affected. It also leads to surprising results on the comparative performance of instruments. Under quantity-based regulation welfare is increasing in the propensity for altruism in the population; under price-based regulation the relationship is non-monotonic. Price-based regulation is preferred when the population is either predominantly altruistic or predominantly selfish, quantity-based regulation for cases in between.

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Paper provided by Birkbeck, Department of Economics, Mathematics & Statistics in its series Birkbeck Working Papers in Economics and Finance with number 1010.

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Date of creation: May 2010
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Handle: RePEc:bbk:bbkefp:1010
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