Events at CERGE-EI
Thursday, 18 December, 2014 | 16:30 | Micro Theory Research Seminar
A. Pavan (Northwestern U.) “Taxation under Learning by Doing: Incentives for Endogenous Types”
Northwestern University, Evanston, Illinois, USA
Authors: Miltos Makris and Alessandro Pavan
Abstract: We study the impact of learning-by-doing on the design of dynamic incentives, and in particular its interplay with uncertainty and preferences for insurance. In passing, we also clarify various results in the literature and underline the relative importance of various channels in shaping dynamic incentives. We show that distortions under learning-by-doing may be upward (i.e. over-production sustained by subsidies). Furthermore, learning-by-doing introduces an intertemporal substitutability in marginal distortions, which, if sufficiently strong, may lead to marginal distortions that are decreasing over time (even in the presence of an insurance motive). Finally, we emphasize that learning-by-doing can have a negative impact on expected information rents, which can be more acute for lower current skills thus leading to progressivity, i.e. marginal distortions that are increasing in the (productivity) type.
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