-
Abstract
Why are distortionary policies used when seemingly Pareto improvements
exist? According to a standard textbook argument, a Pareto improvement can be obtained
by eliminating the distortions, compensating the losers with a lump sum transfer and
redistributing the gains that are left over. We relax the assumption that winners know
the losses suffered by the losers and show that the informationally efficient method
of compensating losers may involve the use of seemingly inefficient (but informationally
efficient) distortionary policies. The risk of over-compensating losers may make distortions
informationally efficient.
-
Nice twitter thread by Nageeb Ali
-
CitationBibTeX
Mitchell, Matthew, and Andrea Moro. "Persistent Distortionary Policies with Asymmetric Information,"
American Economic Review 96(1),
pp. 387-393, March
2006
@article{mitchell-moro-persistent-distortionary-policies-2006,
title = "Persistent Distortionary Policies with Asymmetric Information",
author = "Mitchell, Matthew and Andrea Moro",
year = "2006",
month = " March",
journal = "American Economic Review",
number = "1",
volume = "96",
pages = "387-393",
url = "http://www.andreamoro.net/assets/papers/persistent_distortionary_policies.pdf"
}