Regulation produces enormous benefits and costs, both of which are greatly influenced by myriad exemptions and preferences for small firms that contribute a significant minority of output in many sectors. These firms may generate a disproportionate share of harm due to their being exempt and because exemption induces additional harmful activity to be channeled their way. This article analyzes o...

We model externality abatement as an implementation problem. A social planner would like to ensure efficient behavior among a group of agents whose actions are sources of externalities. However, the planner has limited information about the agents' preferences, and he is unable to distinguish individual agents except through their action choices. We prove that if a concavity condition on aggreg...

We study road supply by competing firms between a single origin and destination. In previous studies, firms simultaneously set their tolls and capacities while taking the actions of the others as given in a Nash fashion. Then, under some widely used technical assumptions, firms set a volume/capacity ratio that is socially optimal, and thus the level of travel time or service quality is socially...

Brain Gain: Claims about Its Size and Impact on Welfare and Growth Are Greatly Exaggerated Based on static partial equilibrium analysis, the “new brain drain” literature argues that, by raising the return to education, a brain drain generates a brain gain that is, under certain conditions, larger than the brain drain itself, and that such a net brain gain results in an increase in welfare and g...

The recent literature on taxation and growth has stressed the optimality of a zero long-run taxation on all accumulative factors of production. For a given path of government spending, the optimal tax plan requires the government to build up a positive stock of public wealth in the short run in the long-run, government spending can be financed with the income accruing from the management of the...

This paper analyses properties of games modelling multilateral negotiations leading to the formation of coalitions in an environment with widespread externalities. The payo¤ generated by each coalition is determined by a set of exogenous parameters. We show that in almost all games, except in a set of measure zero of the parameter space, the Markov perfect equilibrium is locally unique and stab...

This article presents a political-economy analysis of allowance allocation in the EU Emissions Trading Scheme (EU ETS). A common-agency model suggests that a politicalsupport maximizing government considers the preferences of sectoral interest groups besides public interest when allocating emissions permits. In the stylized model, industries represented by more powerful lobby groups face a lowe...

We show that a seemingly paradoxical result is possible—an increase in one's wage can reduce one's welfare. Such outcome can occur in an economy populated by agents who value a private good bought using labor income and a public good produced by voluntary time contributions. A raise in the wage (in general, opportunity cost of time) makes each agent substitute away from contributing to the publ...

This paper analyzes three-party negotiations in the presence of externalities, deriving a close form solution for the stationary subgame perfect Nash equilibrium of a standard non-cooperative bargaining model. Players’ values are monotonically increasing (or decreasing) in the amount of negative (or positive) externalities that they impose on others. Moreover, players’ values are continuous and...