scholarly journals The Welfare Impact of Second-Best Uniform-Pigouvian Taxation: Evidence from Transportation

2018 ◽  
Vol 10 (4) ◽  
pp. 211-242 ◽  
Author(s):  
Christopher R. Knittel ◽  
Ryan Sandler
Keyword(s):  
Market Failure ◽  
Social Cost ◽  
Deadweight Loss ◽  
Negative Externalities ◽  
Market Outcomes ◽  
Welfare Impact ◽  
Second Best ◽  
Pigouvian Taxes ◽  
Gasoline Taxes ◽  
Optimal Taxes

When consumers or firms don’t face the true social cost of their actions, market outcomes are inefficient. In the case of negative externalities, Pigouvian taxes are one way to correct this market failure, but it may be infeasible to tax the externality directly. The alternative, taxing a related product, will be second-best. In this paper, we show that in the presence of heterogeneous externalities and elasticities, this type of indirect tax performs poorly. In our empirical application, gasoline taxes to address pollution externalities, less than a third of the deadweight loss of the externality is addressed by second-best optimal taxes. (JEL D62, H21, H23, H71, H76, Q53, R48)

Missing the Forest for the Trees: Marketing Systems Approach to Pharmaceutical Industry Marketing Practices

2021 ◽  
pp. 027614672110373
Author(s):  
Rama K. Jayanti
Keyword(s):  
Pharmaceutical Industry ◽  
Market Failure ◽  
Systems Approach ◽  
Negative Externalities ◽  
Strategic Choices ◽  
Regulatory Oversight ◽  
Firm Reputation ◽  
Systematic Analysis ◽  
Strategic Intent ◽  
Path Dependencies

The overall aim of this study is to examine firm strategic choices that trigger negative externalities culminating in market failure, system crisis, and public harm. A conceptual framework of marketing system crisis rooted in conflict of interests (COI) theory is used to make the following arguments: (1) marketing strategies emulated by the industry actors at micro level set lock in through path dependencies, (2) such path dependencies may be associated with negative externalities in the form of reduced quality of life of downstream stakeholders in adjacent systems, (3) back lash by system actors precipitates market failure inviting regulatory oversight in the form of fines that tarnish trust and firm reputation, (4) with implications for system crisis and public welfare. A systematic analysis of court documents pertaining to pharmaceutical industry settlements bolstered by sales data from the company reports and Medicaid reimbursement data indicate that, for the case examined, diverse marketing practices are systematically developed with the strategic intent to insert external incentives that influence physician judgment and trigger market failure through negative externalities. Implications for marketing for a better world, systems health, pharmaceutical marketing, and suggestions for incorporating COI principles into theories of marketing for a better world conclude the paper.

London's Congestion Charge

2017 ◽  
pp. 1-10
Author(s):  
David Besanko ◽  
Johannes Horner ◽  
Ed Kalletta
Keyword(s):  
Social Welfare ◽  
Traffic Congestion ◽  
Social Optimum ◽  
Deadweight Loss ◽  
Sufficient Data ◽  
Negative Externalities ◽  
General Terms ◽  
Congestion Charge ◽  
The Social

Describes the events leading up to the imposition of the London congestion charge. Views about the congestion charge, both pro and con, are presented. Also discusses, in general terms, the economics of traffic congestion, pointing out that an unregulated market for driving will not reach the social optimum. Contains sufficient data to estimate the deadweight loss in an unregulated market and the reduction of the deadweight loss due to the imposition of the congestion charge in 2003.To provide a good illustration of how an unregulated market with negative externalities can lead to an overprovision of a good (in this case driving). Also, to show how an externality tax (in this case, London's congestion charge) can lead to an improvement in social welfare.

Redesigning the Market for Volunteers: A Donor Registry

2020 ◽  
Vol 66 (8) ◽  
pp. 3528-3541 ◽  
Author(s):  
Stephanie A. Heger ◽  
Robert Slonim ◽  
Ellen Garbarino ◽  
Carmen Wang ◽  
Daniel Waller
Keyword(s):  
Field Experiment ◽  
Labor Markets ◽  
Whole Blood ◽  
Market Failure ◽  
Blood Donors ◽  
Market Outcomes ◽  
Market Clearing ◽  
Intention To Treat ◽  
Price Signals ◽  
Volunteer Labor

This paper addresses volunteer labor markets where the lack of price signals, nonpecuniary motivations to supply labor, and limited fungibility of supply lead to market failure. To address the causes of the market failure, we conduct a field experiment with volunteer whole blood donors where we introduce a market-clearing mechanism (henceforth: the Registry). Our intention-to-treat estimates suggest that subjects invited to the Registry, regardless of joining, are 66% more responsive to critical shortage appeals than control subjects. While the Registry increases supply during a critical shortage episode, it does not increase supply when there is no shortage; thus, the Registry significantly improves coordination between volunteer donors and collection centers, thereby improving market outcomes. We find evidence that the Registry’s effectiveness stems from crowding-in volunteers with purely altruistic motives and volunteers with a preference for commitment. This paper was accepted by Yan Chen, decision analysis.

scholarly journals Classroom Games: A Market for Lemons

1999 ◽  
Vol 13 (1) ◽  
pp. 205-214 ◽  
Author(s):  
Charles A Holt ◽  
Roger Sherman
Keyword(s):  
Asymmetric Information ◽  
Market Failure ◽  
Quality Standards ◽  
Full Information ◽  
Information Market ◽  
Market Outcomes ◽  
Market Prices ◽  
Total Surplus ◽  
Quality Grade ◽  
Low Levels

The incentives that arise in markets with asymmetric information are illustrated in the classroom exercise presented here. Student sellers choose both a quality ‘grade’ and a price for their products. Initially, both prices and grades for all sellers are posted, and buyers select from these offerings. In this full-information setup, the market prices and grades quickly reach efficient levels that maximize total surplus. Next, although sellers continue to choose grades and prices, only prices (not grades) are posted for buyers to see when they shop. The grades and prices then fall to inefficiently low levels. The observed market outcomes in this exercise can stimulate useful discussion of asymmetric information, market failure, and remedies such as quality standards and warranties.

scholarly journals The second-best use of social cost estimates

1996 ◽  
Vol 18 (4) ◽  
pp. 467-489 ◽  
Author(s):  
Dallas Burtraw ◽  
Alan J. Krupnick
Keyword(s):  
Social Cost ◽  
Cost Estimates ◽  
Second Best

scholarly journals Commodity Taxation under Habit Formation and Myopia

2010 ◽  
Vol 10 (1) ◽  
Author(s):  
Helmuth Cremer ◽  
Philippe De Donder ◽  
Dario Maldonado ◽  
Pierre Pestieau
Keyword(s):  
Habit Formation ◽  
Consumption Tax ◽  
Negative Externalities ◽  
Commodity Taxation ◽  
Second Best ◽  
Lump Sum ◽  
Redistributive Effects ◽  
Consumption Taxes ◽  
Second Period ◽  
Period Model

Abstract This paper analyzes the pattern of consumption taxes in a two period model with habit formation and myopia. An individual’s second-period needs increase with first period consumption. However, myopic individuals do not see this habit formation relation when they take their saving decision. The first-best solution is decentralized by a simple “Pigouvian” (paternalistic) consumption tax (along with suitable lump-sum taxes). In a second-best setting, when personalized lump-sum transfers are not available, consumption taxes may have conflicting paternalistic and redistributive effects. Taxes should discourage consumption of goods that entail negative externalities (unforeseen habits), but instead they discourage less the consumption of goods that are proportionately consumed by individuals with high net social marginal utility of income. Both myopic and farsighted individuals may benefit more from the second-best policy as the proportion of myopic agents in society increases.

Business Ethics and Equality

2018 ◽  
Author(s):  
Abraham A. Singer
Keyword(s):  
Social Justice ◽  
Business Ethics ◽  
Fundamental Theorem ◽  
Market Failure ◽  
Market Failures ◽  
Second Best ◽  
Corporate Executives ◽  
Market Failures Approach

This chapter shows why concerns for equality must affect business ethics. In the last chapter, we saw that the market failures approach takes the theory of second best seriously when it comes to the first fundamental theorem; however, it does not seem to apply it to its own reliance on the second fundamental theorem. Just as we ask corporate executives to constrain and restrain themselves according to the spirit of efficiency-promoting laws in order to achieve second-best efficiency, market actors ought to shoulder some of the burden of justice in order to achieve second-best social justice. To this end this chapter introduces the concept of “justice failure” as a concept parallel to “market failure” and sketches out what a justice failures approach to business ethics would look like. The chapter concludes by responding to potential objections.

Knowledge Problems and the Problem of Social Cost

1992 ◽  
Vol 14 (2) ◽  
pp. 209-224 ◽  
Author(s):  
Roy E. Cordato
Keyword(s):  
Property Rights ◽  
Environmental Economics ◽  
Social Cost ◽  
Tort Law ◽  
Welfare Economics ◽  
Central Issue ◽  
Negative Externalities ◽  
Liability Rules

Ronald Coase's 1960 article, “The Problem of Social Cost,” has been one of the most influential works in the development of welfare economics since A. C. Pigou's The Economics of Welfare. Principally, the article made the definition and distribution of property rights a central issue when discussing the efficiency problems of negative externalities. Coase's approach has given rise to most of the economics of tort law and alternative liability rules. It has also led to the development of the “property rights” approach to environmental economics that has found prominence as an alternative to traditional Pigovian analysis.

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