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Open Access Publications from the University of California

Inducing investments and regulating externalities by command versus taxes

  • Author(s): Glazer, Amihai
  • et al.

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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