Climate change is an externality since those who emit greenhouse gases do not pay the long-term negative consequences of their emissions. In view of the resulting inefficiency, it has been claimed that climate policies can be evaluated by the Pareto principle. However, climate policies lead to...

Anthropogenic climate change produces two conceptually distinct negative economic externalities. The first is an expected path of climate damage. The second, which is this paper's focus, is an expected path of economic risk. To isolate the climate-risk problem, we consider mean-zero, symmetric...

The recent international agreement on a minimum effective corporate tax rate marks a profound change in global tax arrangements. The appropriate level of that minimum, however, has been, and remains, extremely contentious. This paper explores the strategic responses to a minimum tax, which—the...

The notion of a Bowley optimum has gained recent popularity as an equilibrium concept in problems of risk sharing and optimal reinsurance. In this paper, we examine the relationship between Bowley optimality and Pareto efficiency in a problem of optimal reinsurance, under fairly general...

Climate change is an externality since those who emit greenhouse gases do not pay the long-term negative consequences of their emissions. In view of the resulting inefficiency, it has been claimed that climate policies can be evaluated by the Pareto principle. However, climate policies lead to...

The recent international agreement on a minimum effective corporate tax rate marks a profound change in global tax arrangements. The appropriate level of that minimum, however, has been, and remains, extremely contentious. This paper explores the strategic responses to a minimum tax,...

The recent international agreement on a minimum effective corporate tax rate marks a profound change in global tax arrangements. The appropriate level of that minimum, however, has been, and remains, extremely contentious. This paper explores the strategic responses to a minimum tax,...

A random assignment is robust ex-post Pareto efficient whenever for any of its lottery decomposition, each deterministic assignment in its support is Pareto efficient. We show that ordinal efficiency implies robust ex-post Pareto efficiency while the reverse does not hold. We know that...

This paper studies the design of Pareto-optimal reinsurance contracts in a market where the insurer and reinsurer maximize their expected utilities of end-of-period wealth. In addition, we assume that the insurer and reinsurer wish to control their solvency risks, which are defined through...

This research mainly aims to provide a practical method to (1) rank a firm's customers, (2) determine the implied uncertainty for customers’ demand, and (3) allocate supply chain (SC) resources for meeting customer demands in an equitable manner in order to provide them with an...

Is deficit finance, explicit or implicit, free when borrowing rates are routinely lower than growth rates? Specifically, can the government make all generations better off by perpetually taking from the young and giving to the old? We study this question in simple closed and open economies and...

We investigate efficient and minimally unstable Pareto improvements over the deferred acceptance (DA) mechanism-a popular school choice mechanism that is stable but not efficient. We show that there is no Pareto improvement over the DA mechanism that is minimally unstable among efficient...

We develop a non-linear, quantitative macroeconomic model with heterogeneous monopolistic financial intermediaries, incomplete markets, default risk, endogenous bank entry, and aggregate uncertainty. The model generates a bank net worth distribution fluctuation problem analogous to the canonical...

This paper argues that campaign finance policy, in the form of contribution limits and matching public financing, can be Pareto improving even under the most optimistic assumptions concerning the role of campaign advertising and the rationality of voters. The argument assumes that candidates use...

In Fairness versus Welfare, we advance the thesis that social policies should be assessed based entirely on their effects on individuals' well-being. This thesis implies that no independent weight should be accorded to notions of fairness (other than many purely distributive notions). We support...

We study a small open economy displaying Pareto-distributed wealth resulting from random death. The government runs a distribution scheme on inheritance. We present the mathematical background that allows to study the dynamics of means. We end up with ordinary differential equations for the mean...

Alan Auerbach and Kevin Hassett offer a new measure of horizontal equity (HE) that is designed to overcome deficiencies in prior indexes. There is, however, a fundamental problem that their effort shares with their predecessors' attempts: the underlying rationale for pursuing HE at the expense...

The non-tradability of human capital is often cited for the failure of traditional asset pricing theory to explain agents' portfolio holdings. In this paper we argue that the opposite might be true --- traditional models might not be able to explain agent portfolio holdings because they do not...

Policy-makers must sometimes choose between an alternative which has somewhat lower expected value for each person, but which will substantially improve the outcomes of the worst off, or an alternative which has somewhat higher expected value for each person, but which will leave those who end...

Wilson (1977) provided the striking result that the government can always Pareto dominate a pooling equilibrium in a private insurance market with adverse selection by providing the pooling policy as a compulsory public policy and allowing individuals to buy supplementary private insurance. I...

This paper describes an efficiency approach to the evaluation of policy changes. Rather than comparing the utility allocations that arise before and after a policy change is introduced, this approach evaluates a policy change by comparing it with other possible changes which might be made from...

The recent literature on the economic behavior of unions is dominated by a controversy over whether or not bargaining is Pareto optimal. If unions care about employment as well as wages, efficient bargains between unions and management "should" involve both these variables rather than only...

Recent climate change negotiations have emphasised the need for developing countries to take the lead by undertaking economy-wide absolute emission reduction targets but also the obligation of developed countries to provide financial resources to assist them in their mitigation efforts. This...

This paper studies an optimal reinsurance problem of Pareto-optimality when the contract is subject to default of the reinsurer. We assume that the reinsurer can invest a share of its wealth in a risky asset and default occurs when the reinsurer's end-of-period wealth is insufficient to cover...

The classical way to get an analytical model for the (supposedly heavy) tail of a loss severity distribution is via parameter inference from empirical large losses. However, in the insurance practice it occurs that one has much less information, but nevertheless needs such a model, say for...

Rational players in game theory are neoliberal in the sense that they can choose any available action so as to maximize their payoffs. It is well known that this can result in Pareto inferior outcomes (e.g. the Prisoner’s Dilemma). Classical liberalism, in contrast, argues that people should...

In an influential paper, Kaplow and Shavell (Journal of Political Economy, 2001) propose and prove a proposition that “Any non-welfarist method of policy assessment violates the Pareto principle.” In this paper, I first make a counter example to prove that their proposition is false. I also...

This paper studies an Overlapping Generations model with stochastic production and incomplete markets to assess whether the introduction of an unfunded social security system can lead to a Pareto improvement. When returns to capital and wages are imperfectly correlated, the consumption variance...

This paper studies Pareto efficient income taxation in an economy with infinitely-lived individuals whose income generating abilities evolve according to a two-state Markov process. The study yields two main results. First, when individuals are risk neutral, the fraction of individuals who face...

This paper analyzes the set of Pareto efficient tax structures. The formulation of the problem as one of self-selection not only shows more clearly the similarity between this problem and a number of other problems (such as optimal pricing of a monopolist) which have recently been the subject of...