We develop a discrete or finite household model with congestable local public goods where the level of provision, the number of facilities and their locations are all endogenously determined in a purely normative context. We prove the existence of an equal-treatment identical-provision second best optimum, where all households are required to reach the same utility level, the provision of local...

This paper studies slot allocation at congested airports in Europe. First, I discuss the inefficiencies of the current regulation, introduced as part of the liberalisation process of the air transport market. Then, I consider three marked based methods which are suitable to achieve a more efficient allocation of slots to airlines: congestion pricing, auctions and secondary trading. These method...

We analyze the interaction between risk sharing and capital accumulation in a stochastic OLG model with production. We give a complete characterization of interim Pareto optimality. Our characterization also subsumes equilibria with a PAYG social security system. In a competitive equilibrium interim Pareto optimality is equivalent to intergenerational exchange e¢ciency, which in turn implies dy...

This paper introduces a dynamic equilibrium model of the research-based pharmaceutical industry and parameterizes it using industry facts. In the model, imposing price controls in the U.S. reduces firm value, R&D, the flow of new drugs, and the net present value of consumer welfare in the U.S. and globally. Removing price controls in one or more non-U.S. countries increases firm value, R&D, the...

The excess burden of taxation is the efficiency cost, or deadweight loss, associated with taxation. Excess burden is commonly measured by the area of the associated Harberger triangle, though accurate measurement requires the use of compensated demand and supply schedules. The generation of empirical excess burden studies that followed Arnold Harberger’s pioneering work in the 1960s measured th...

Efficiency in a Matching Model with Heterogeneous Agents: Too Many Good or Bad Jobs? This paper analyses the efficiency of the equilibrium allocation in a matching model with two types of workers and jobs. The basic assumption is that high-skill workers can perform both skilled and unskilled jobs, while low-skill workers can only perform unskilled jobs. Our first result shows that the equilibri...

Optimal policy rules—including those regarding income taxation, commodity taxation, public goods, and externalities—are typically derived in models with homogeneous preferences. This article reconsiders many central results for the case in which preferences for commodities, public goods, and externalities are heterogeneous. When preference differences are observable, standard second-best result...

In this article, our objective is to determine efficient allocations in economies with multiple agents having recursive utility functions. Our main result is to show that in a multiagent economy, the problem of determining efficient allocations can be characterized in terms of a single value function (that of a social planner), rather than multiple value functions (one for each investor), as ha...

We revisit n-player coordination games with Pareto-ranked Nash equilibria. As a novelty, we introduce fuzzy play and a matching device. By fuzzy play we mean that each player does not choose which pure strategy to play, but instead chooses a nonempty subset of his strategy set that he submits to the matching device. The matching device is a very simple one. It randomly selects a match if possib...

Should long-term assets such as infrastructure, education, and the environment earn the same return as productive capital? If yes, we can say that investments in such assets pass the cost-benefit test. But time-inconsistent decision-makers prefer to violate the test: long-term assets provide commitment to current preferences, leading to investment biases. We formulate the cost-benefit requireme...