Education, taxation and the perceived effects of sin good consumption

Abstract In a setting in which an agent has behavioral bias that causes underestimation or overestimation of the health consequences sin goods consumption, paper studies how social planner can affect demand such through education and taxation. When only optimistic consumers are present, depending on elasticity good with respect to taxation, two instruments be substitutes complements. heterogeneous, correcting effect taxation unintended distorting effects both pessimistic rational ones. this framework, educational measures, by aligning biased consumers’ perceptions closer true probability damages, more effective than