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Inducing investments and regulating externalities by command versus taxes

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Publication Date
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eScholarship - University of California
Keywords
  • Regulation
  • Externalities
  • Taxes
  • Social And Behavioral Sciences
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Abstract

A linear tax on an externality-generating activity may not attain the first-best social optimum. The problem arises because a monopolist’s gain from improving the characteristics of a product may differ from the social gain, even when consumers are willing to pay for the change.

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