Pigouvian taxation with administrative costs

This paper examines how the optimal Pigouvian tax should be adjusted to reflect adminisrative costs. Several cases are examined, depending on whether the administrative costs are fixed per firm taxed or are a function of the amount of tax collected, and on whether such costs are borne by the government or by the taxed firm. In some cases the presence of administrative costs leads to an optimal tax greater than the external cost, while in other cases it leads to a tax less than the external cost.     

The long-run effects of a residential property tax and local public services

The long-run effects of a residential property tax and local public services are analyzed in the context of an urban spatial model. An endogenous labor market allows the local wage rate to adjust, in conjunction with residential and business land prices, in response to local fiscal changes.     

The optimal use of fines and imprisonment

This paper examines the use of fines and imprisonment to deter individuals from engaging in harmful activities. These sanctions are analyzed separately as well as together, first for identical risk-neutral individuals and then for two groups of risk-neutral individuals who differ by wealth. When fines are used alone and individuals are identical, the optimal fine and probability of apprehension are such that there is some ‘underdeterrence’. If individuals differ by wealth, then the optimal fine for the high wealth group exceeds the fine for the low wealth group. When imprisonment is used alone and individuals are identical, the optimal imprisonment term and probability may be such that there is either underdeterrence or overdeterrence. If individuals differ by wealth, the optimal imprisonment term for the high wealth group may be longer or shorter than the term for the low wealth group. When fines and imprisonment are used together, it is desirable to use the fine to its maximum feasible extent before possibly supplementing it with an imprisonment term. The effects of risk aversion of these results are also discussed.     

A Damage-Revelation Rationale for Coupon Remedies

This article studies optimal remedies in a setting in whichdamages vary among plaintiffs and are difficult to determine.We show that giving plaintiffs a choice between coupons to purchaseunits of the defendant's product at a discount and cash—acoupon-cash remedy—is superior to cash alone. The optimalcoupon-cash remedy offers a cash amount that is less than thevalue of the coupons to plaintiffs who suffer relatively highharm. Such a remedy induces these plaintiffs to choose coupons,and plaintiffs who suffer relatively low harm to choose cash.Sorting plaintiffs in this way leads to better deterrence becausethe costs borne by defendants (the cash payments and the costof providing coupons) more closely approximate the harms thatthey have caused.