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Author:Hellwig, Christian 

Report
Optimal regulation in the presence of reputation concerns

We study a market with free entry and exit of firms who can produce high-quality output by making a costly but efficient initial unobservable investment. If no learning about this investment occurs, an extreme ?lemons problem? develops, no firm invests, and the market shuts down. Learning introduces reputation incentives such that a fraction of entrants do invest. If the market operates with spot prices, simple regulation can enhance the role of reputation to induce investment, thus mitigating the ?lemons problem? and improving welfare.
Staff Report , Paper 464

Working Paper
A Fair Day's Pay for a Fair Day's Work: Optimal Tax Design as Redistributional Arbitrage

We study optimal tax design based on the idea that policy-makers face trade-offs betweenmultiple margins of redistribution. Within a Mirrleesian economy with earnings, consumptionand retirement savings, we derive a novel formula for optimal income and savings distortionsbased on redistributional arbitrage. We establish a sufficient statistics representation of thelabor income and capital tax rates on top income earners in dynamic environments, which relieson the observed distributions of both income and consumption. Because consumption has athinner Pareto tail than income, our quantitative ...
Working Paper Series , Paper WP 2022-03

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