I examine optimal taxes in an overlapping generations economy in which each consumer's utility depends on consumption relative to the average level of consumption in the economy (the benchmark level of consumption) as well as on the level of the consumer's own consumption. The socially optimal...

It is widely believed that an environmental tax (price regulation) and cap-and-trade (quantity regulation) are equally efficient in controlling pollution when there is no uncertainty. We show that this is not the case if some consumers (firms, local governments) are morally concerned about...

It is widely believed that an environmental tax (price regulation) and cap-and-trade (quantity regulation) are equally efficient in controlling pollution when there is no uncertainty. We show that this is not the case if some consumers (firms, local governments) are morally concerned about...