Social planning and coercion under bounded rationality with an application to environmental policy
JournalArticle (Originalarbeit in einer wissenschaftlichen Zeitschrift)
 
ID 3653019
Author(s) Hintermann, Beat; Rutherford, Thomas F.
Author(s) at UniBasel Hintermann, Beat
Year 2016
Title Social planning and coercion under bounded rationality with an application to environmental policy
Journal International tax and public finance
Volume 24
Number 5
Pages / Article-Number 854-878
Keywords Coercion, taxation, energy policy, public goods, paternalism
Abstract

We develop a theory of social planning with a concern for economic coercion, which we define as the difference between consumers' actual utility, and the "counterfactual" utility they expect to obtain if they were able to set policy themselves. Reasons to limit economic coercion include protecting minorities, preventing disenfranchised groups from engaging in socially costly behavior, or political economy considerations. If consumers are fully rational, we show that limiting coercion is equivalent to placing more welfare weight on coerced consumers at the expense of others. If, however, consumers' rationality is bounded, counterfactual utility becomes endogenous to current policy, and the welfare loss associated with limiting coercion increases. We set up a numerical version of our model and find that the bias-related welfare loss can be substantial.

Publisher Springer
ISSN/ISBN 0927-5940 ; 1573-6970
URL http://download.springer.com/static/pdf/815/art%253A10.1007%252Fs10797-016-9433-0.pdf?originUrl=http%3A%2F%2Flink.springer.com%2Farticle%2F10.1007%2Fs10797-016-9433-0&token2=exp=1481882668~acl=%2Fstatic%2Fpdf%2F815%2Fart%25253A10.1007%25252Fs10797-016-943
edoc-URL http://edoc.unibas.ch/44809/
Full Text on edoc Available
Digital Object Identifier DOI 10.1007/s10797-016-9433-0
ISI-Number WOS:000411117900006
Document type (ISI) Article
 
   

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