Paul Calcott

Demand Inducement as Cheap Talk

The doctor-patient interaction is analysed in a game of cheap talk. Causes and consequences of imperfect agency are examined. One form of imperfect agency, supplier-induced demand, is a feature of neologism proof equilibria with some parameter values but not with others. The model is used to evaluate two tests that have been used to test for the existence of supplier-induced demand. The analysis suggests that the two tests, which compare the medical utilization of informed and uninformed consumers, are not valid.

International Environmental Agreements: Design of Optimal Transfers Under Heterogeneity

International environmental agreements (IEAs) can coordinate abatement of transboundary pollutants. This paper investigates how heterogeneous countries facing a stock pollutant might structure such an agreement. In particular, we examine how an IEA might be implemented with a set of monetary transfers. The focus is on transfers that are time invariant, linear in emissions, and consistent with budget balance. There is a range of such schemes that would induce efficient emissions. We provide a simple and intuitive characterization of these penalties and describe how specific proposals might be chosen in order to facilitate compliance and implementation. Our proposals are illustrated with a simple example. We show that heterogeneity reduces the scope for penalty schemes to jointly satisfy desirable properties.

Health care evaluation, utilitarianism and distortionary taxes

Cost Utility Analysis (CUA) and Cost Benefit Analysis (CBA) are methods to evaluate allocations of health care resources. Problems are raised for both methods when income taxes do not meet the first best optimum. This paper explores the implications of three ways that taxes may fall short of this ideal. First, taxes may be distortionary. Second, they may be designed and administered without reference to information that is used by providers of health care. Finally, the share of tax revenue that is devoted to health care may be suboptimal. The two methods are amended to account for these factors.

Corrective Taxes and Cigarette Characteristics

If cigarette design was exogenous, inefficiencies arising from smoking could be addressed either with a tax per packet or with an ad valorem tax. However, it is well known that the consequences of these two instruments differ when product characteristics are endogenous. We consider three such characteristics: nicotine, tar, and flavor. Implementation of the first-best social optimum typically requires the capacity to tax or regulate harmful ingredients. Without such a capacity, the next-best policy often combines a per-unit tax on cigarettes with an ad valorem subsidy. Copyright

New on Paternalism

Individuals often seem to misjudge their own interests. This can be for many reasons, including inadequate information or failures of reasoning and volition. These have been construed as paternalist motives for the state to intervene. But, an article by New (1999), criticizes earlier accounts of paternalism. He argues that imperfect information constitutes a standard form of market failure, and consequently policies that respond to it do not require a paternalist motivation. The purpose of this note is to evaluate New’s claim. New argues that there are four failures of reasoning, for which paternalist intervention is rational, such as weakness of will, emotions distorting decisions and a technical inability to complete the necessary mental tasks. However, imperfect information is also a cause of individuals making non-selfish decisions, and could be justified as a cause for paternalist intervention. But New explicitly denies that such a rationale would be paternalist, arguing that as ignorance is a failure of information, it does not provide a paternalist motive. New also suggests two reasons to adopt his view of paternalism. Firstly, that it corresponds to the distinction between market and individual failure and second, the benign nature of policy responses to imperfect information. In this paper, these reasons and rationales are interpreted, explored and evaluated and I conclude that neither is convincing. My reason for this is that this approach does not uphold the claim that reasoning and volitional failures only apply to paternalism. But it does suggest a possible argument for the view that imperfect information is not relevant to paternalism, an argument that is not consistent with New’s position.

Choosing Whether to Comply with a General Duty or with a Specification Standard

Abstract Regulated firms sometimes have a choice about whether to discharge a general duty or to comply with specification standards. This paper formalizes rationales for giving firms such a choice, but also points out drawbacks. One rationale is that choice can make compliance less onerous and hence more attractive. A second rationale is that the more socially efficient form of compliance can vary among firms. Whether this approach actually would be conducive to social efficiency depends on a range of factors, including the proportion of firms that would otherwise comply, the inflexibility that specification standards impose on firms, and on how strictly general duties would be interpreted.Regulated firms sometimes have a choice about whether to discharge a general duty or to comply with specification standards. This paper formalizes rationales for giving firms such a choice, but also points out drawbacks. One rationale is that choice can make compliance less onerous and hence more attractive. A second rationale is that the more socially efficient form of compliance can vary among firms. Whether this approach actually would be conducive to social efficiency depends on a range of factors, including the proportion of firms that would otherwise comply, the inflexibility that specification standards impose on firms, and on how strictly general duties would be interpreted.

Cigarette Taxes with Endogenous Addictiveness

Abstract We examine how a tax on cigarettes would be affected by endogeneity of their addictiveness. In our model, the rationale for government intervention is based on internalities and externalities. While a corrective tax could be imposed to address these two distortions, it may result in excessive nicotine consumption per cigarette. This suggests that tax rates should be moderated. We consider two types of behavior that affect the addictiveness of cigarettes. First, producers can manipulate the nicotine content of tobacco products. Second, consumers are able to adjust the intensity of their smoking. We show that there may still be a case for a corrective tax. However, tax policies and attainable welfare depend on whether the nicotine dose from each cigarette is influenced by producers or consumers.