Myopia, regrets, and risky behaviors
This paper examines how a government should intervene when agents make, for different reasons, choices that have long term detrimental effects on their survival prospects. We consider an economy where some agents make risky choices (here sin good consumption) 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 regret, but not with other behaviors. In the second-best, asymmetric information and redistributive concerns imply interference not only with myopic behaviors, but also with impatience-based behaviors. Finally, we introduce heterogeneity in individual productivity, 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.
(This abstract was borrowed from another version of this item.)
|Date of creation:|
|Date of revision:|
|Note:||In : International Tax and Public Finance, 19(2), 288-317, 2012|
|Contact details of provider:|| Postal: Voie du Roman Pays 34, 1348 Louvain-la-Neuve (Belgium)|
Fax: +32 10474304
Web page: http://www.uclouvain.be/core
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Grégory Ponthière, 2010.
"Unequal Longevities and Lifestyles Transmission,"
- Martin Forster & Andrew M. Jones, . "The role of tobacco taxes in starting and quitting smoking," Discussion Papers 00/51, Department of Economics, University of York.
- Andrew B. Lyon & Robert M. Schwab, 1991.
"Consumption Taxes in a Life-Cycle Framework: Are Sin Taxes Regressive?,"
NBER Working Papers
3932, National Bureau of Economic Research, Inc.
- Lyon, Andrew B & Schwab, Robert M, 1995. "Consumption Taxes in a Life-Cycle Framework: Are Sin Taxes Regressive?," The Review of Economics and Statistics, MIT Press, vol. 77(3), pages 389-406, August.
- Markus Haavio & Kaisa Kotakorpi, 2009.
"The Political Economy of Sin Taxes,"
CESifo Working Paper Series
2650, CESifo Group Munich.
- van Ours, Jan C., 2004. "A pint a day raises a man's pay; but smoking blows that gain away," Journal of Health Economics, Elsevier, vol. 23(5), pages 863-886, September.
- Henry Saffer, 2000.
"Alcohol Consumption and Alcohol Advertising Bans,"
NBER Working Papers
7758, National Bureau of Economic Research, Inc.
- Jonathan Gruber & Botond Koszegi, 2000. "Is Addiction "Rational"? Theory and Evidence," NBER Working Papers 7507, National Bureau of Economic Research, Inc.
- Phillip B. Levine & Tara Gustafson & Ann D. Velenchik, 1997.
"More bad news for smokers? The effects of cigarette smoking on wages,"
Industrial and Labor Relations Review,
ILR Review, Cornell University, ILR School, vol. 50(3), pages 493-509, April.
- Phillip B. Levine & Tara A. Gustafson & Ann D. Velenchik, 1997. "More Bad News for Smokers? The Effects of Cigarette Smoking on Wages," ILR Review, Cornell University, ILR School, vol. 50(3), pages 493-509, April.
- Henry Saffer & Dhaval Dave, 2006.
"Alcohol advertising and alcohol consumption by adolescents,"
John Wiley & Sons, Ltd., vol. 15(6), pages 617-637.
- Henry Saffer & Dhaval Dave, 2003. "Alcohol Advertising and Alcohol Consumption by Adolescents," NBER Working Papers 9676, National Bureau of Economic Research, Inc.
- Suranovic, Steven M. & Goldfarb, Robert S. & Leonard, Thomas C., 1999. "An economic theory of cigarette addiction," Journal of Health Economics, Elsevier, vol. 18(1), pages 1-29, January.
- Beatty, Timothy K.M. & Larsen, Erling Røed & Sommervoll, Dag Einar, 2009.
"Driven to drink: Sin taxes near a border,"
Journal of Health Economics,
Elsevier, vol. 28(6), pages 1175-1184, December.
- Helmuth Cremer & Philippe De Donder & Darío Maldonado & Pierre Pestieau, 2012.
"Taxing Sin Goods and Subsidizing Health Care,"
Scandinavian Journal of Economics,
Wiley Blackwell, vol. 114(1), pages 101-123, 03.
- Helmuth Cremer & Philippe De Donder & Darío Maldonado & Pierre Pestieau, 2008. "Taxing Sin Goods and Subsidizing Health Care," CESifo Working Paper Series 2297, CESifo Group Munich.
- CREMER, Helmuth & DE DONDER, Philippe & MALDONADO, Dario & PESTIEAU, Pierre, 2008. "Taxing sin goods and subsidizing health care," CORE Discussion Papers 2008031, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Cremer, Helmuth & De Donder, Philippe & Maldonado, Darío & Pestieau, Pierre, 2008. "Taxing Sin Goods and Subsidizing Health Care," CEPR Discussion Papers 6777, C.E.P.R. Discussion Papers.
- Orphanides, Athanasios & Zervos, David, 1995.
"Rational Addiction with Learning and Regret,"
Journal of Political Economy,
University of Chicago Press, vol. 103(4), pages 739-58, August.
- Frank J. Chaloupka, IV & Richard Peck & John A. Tauras & Xin Xu & Ayda Yurekli, 2010. "Cigarette Excise Taxation: The Impact of Tax Structure on Prices, Revenues, and Cigarette Smoking," NBER Working Papers 16287, National Bureau of Economic Research, Inc.
- Sijbren Cnossen, 2007. "Alcohol taxation and regulation in the European Union," International Tax and Public Finance, Springer, vol. 14(6), pages 699-732, December.
- Hirschberg, J. & Lye, J.N., 2000.
"Alcohol Consumption, Smoking and Wages,"
Department of Economics - Working Papers Series
764, The University of Melbourne.
- Lewit, Eugene M. & Coate, Douglas, 1982.
"The potential for using excise taxes to reduce smoking,"
Journal of Health Economics,
Elsevier, vol. 1(2), pages 121-145, August.
- Eugene M. Lewit & Douglas Coate, 1981. "The Potential for Using Excise Taxes to Reduce Smoking," NBER Working Papers 0764, National Bureau of Economic Research, Inc.
- Donald S. Kenkel & Robert R. Reed III & Ping Wang, 2002. "Rational Addiction, Peer Externalities and Long Run Effects of Public Policy," NBER Working Papers 9249, National Bureau of Economic Research, Inc.
- Nils Braakmann, 2008. "The smoking wage penality in the United Kingdom: Regression and matching evidence from the British Household Survey Panel," Working Paper Series in Economics 96, University of Lüneburg, Institute of Economics.
- Silke Anger & Michael Kvasnicka, 2010.
"Does smoking really harm your earnings so much? Biases in current estimates of the smoking wage penalty,"
Applied Economics Letters,
Taylor & Francis Journals, vol. 17(6), pages 561-564.
- Anger, Silke & Kvasnicka, Michael, 2010. "Does Smoking Really Harm Your Earnings so Much? Biases in Current Estimates of the Smoking Wage Penalty," EconStor Open Access Articles, ZBW - German National Library of Economics, pages 561-564.
- Laibson, David I., 1997.
"Golden Eggs and Hyperbolic Discounting,"
4481499, Harvard University Department of Economics.
- Heineck, Guido & Schwarze, Johannes, 2003. "Substance Use and Earnings: The Case of Smokers in Germany," IZA Discussion Papers 743, Institute for the Study of Labor (IZA).
- Michel Grignon, 2007. "Using Cigarette Taxes When Smokers Are Heterogeneous: Evidence on Hyperbolic Preferences, Endogenous Preferences, Smoking, and Price Elasticity of Smoking in France," Centre for Health Economics and Policy Analysis Working Paper Series 2007-10, Centre for Health Economics and Policy Analysis (CHEPA), McMaster University, Hamilton, Canada.
- Sandra L. Decker & Amy Ellen Schwartz, 2000. "Cigarettes and Alcohol: Substitutes or Complements?," NBER Working Papers 7535, National Bureau of Economic Research, Inc.
- Chaloupka, Frank J. & Wechsler, Henry, 1997.
"Price, tobacco control policies and smoking among young adults,"
Journal of Health Economics,
Elsevier, vol. 16(3), pages 359-373, June.
- Frank J. Chaloupka & Henry Wechsler, 1995. "Price, Tobacco Control Policies and Smoking Among Young Adults," NBER Working Papers 5012, National Bureau of Economic Research, Inc.
- Saroja Selvanathan, 2006. "How similar are alcohol drinkers? International evidence," Applied Economics, Taylor & Francis Journals, vol. 38(12), pages 1353-1362.
- Ahmed Khwaja & Frank Sloan & Yang Wang, 2009. "Do Smokers Value Their Health and Longevity Less?," Journal of Law and Economics, University of Chicago Press, vol. 52(1), pages 171-196, 02.
- van Ours, J.C., 2004. "A pint a day raises a man's pay, but smoking blows that gain away," Other publications TiSEM 1447748f-5e9e-4064-84f2-1, Tilburg University, School of Economics and Management.
- M. Christopher Auld, 2005. "Smoking, Drinking, and Income," Journal of Human Resources, University of Wisconsin Press, vol. 40(2).
When requesting a correction, please mention this item's handle: RePEc:cor:louvrp:2452. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Alain GILLIS)
If references are entirely missing, you can add them using this form.