TY  - JOUR
AU  - Arnott,Richard J.
AU  - Stiglitz,Joseph E.
TI  - Moral Hazard and Optimal Commodity Taxation
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 1154
PY  - 1986
Y2  - August 1986
UR  - http://www.nber.org/papers/w1154
L1  - http://www.nber.org/papers/w1154.pdf
N1  - Author contact info:
Richard J. Arnott
Department of Economics
Boston College
Chestnut Hill, MA 02467
Tel: 617/552-3674
Fax: 617/552-2308
E-Mail: richard.arnott@ucr.edu

Joseph E. Stiglitz
Uris Hall, Columbia University
3022 Broadway, Room 212
New York, NY  10027
Tel: 212/854-0671
Fax: 212/662-8474
E-Mail: jes322@columbia.edu
AB  - The central result of this paper is that when moral hazard ispresent,competitive equilibrium is almost always (constrained) inefficient. Moral hazard causes shadow prices to deviate from market prices. To remedy this market failure, the government could introduce differential commodity taxation. Moral hazard causes people to take too little care to prevent accidents. The corresponding dead-weight loss can be reduced by subsidizing (taxing) those goods the consumption of which encourages (discourages) accident avoidance.At the (constrained) optimum, the sum of the deadweight losses as-sociated with moral hazard, on the one hand, and differential commodity taxation, on the other, is minimized.
ER  -