Moral hazard and optimal commodity taxation |
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| Affiliation: | 1. School of Materials Science and Engineering, Chang''an University, Xi''an 710061, China;2. Department of Mechanical Engineering, National University of Singapore, 9 Engineering Drive 1, Singapore 117576, Singapore;3. Shenzhen Wamat New Material Technology Co. Ltd., Level 5, Feimoshangfang Center, Beihuan Blvd., Shangcun Community, Gongming, Guangming District, Shenzhen, Guangdong, China |
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| Abstract: | This paper demonstrates that in an economy with moral hazard and more than one commodity, competitive equilibrium is not constrained-efficient. To correct the market failure, differential commodity taxation is necessary. A general optimal tax formula is derived, and special cases of is discussed. |
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