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A Note on Pareto-Optimal Taxation Mechanism in Noncooperative Strategic Bilateral Exchange

Author

Listed:
  • Ludovic A. Julien

    (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

  • Gagnie Pascal Yebarth

    (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

Abstract

This paper investigates the taxation mechanism implemented in strategic bilateral exchange by Gabszewicz and Grazzini (JPET, 1999). These authors show that endowment taxation with transfers can implement a Pareto-optimal allocation when the preferences of traders are represented by some specific homothetic utility functions. We show that this taxation mechanism can also implement a Pareto-optimal allocation when the preferences of traders are represented by non homothetic utility functions. To this end, we consider a class of quasi-linear utility functions. Furthermore, we illustrate that, with quasi-linear utility functions, by introducing heterogeneity between traders, there are other environments in which this taxation mechanism implements a Pareto-optimal outcome.

Suggested Citation

  • Ludovic A. Julien & Gagnie Pascal Yebarth, 2026. "A Note on Pareto-Optimal Taxation Mechanism in Noncooperative Strategic Bilateral Exchange," Post-Print hal-05427342, HAL.
    • Handle: RePEc:hal:journl:hal-05427342
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