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Korean Version |
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Abstract
To examine the properties of the optimal income taxation scheme under adverse selection, we analyzed taxpaying agents who are averse to inequity. The efficient agent who is averse to inequity was found to produce more outputs than first-best level, while the inefficient agent produces less than the second-best level of standard adverse selection output when the agents compared incomes among themselves. Thus, the tradeoff between efficiency and equity becomes more serious or positive than the tradeoff without inequity aversion if agents compare income. When agents compare rents, the optimal productions become identical to the standard adverse selection which has the same degree of tradeoff between efficiency and equity. |
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Keywords Inequity Aversion, Adverse Selection, Redistribution, Tradeoff |
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JEL classification codes D23, D82, H21, J4 |
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Journal of the Korean Econometric Society |
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