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Internalities and paternalism: applying the compensation criterion to multiple selves across time

Eric Rasmusen
Social Choice and Welfare
Vol. 38, No. 4, Symposium on Behavioural Economics (April 2012), pp. 601-615
Published by: Springer
Stable URL: http://www.jstor.org/stable/41485434
Page Count: 15
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Internalities and paternalism: applying the compensation criterion to multiple selves across time
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Abstract

One reason to call an activity a vice and suppress it is that it reduces a person's future happiness more than it increases his present happiness. Gruber and Koszegi (Q J Econ 116(4): 1261—1303, 2001) show how a vice tax can increase a person's welfare in a model of multiple selves with hyperbolic preferences across time. The present paper shows that an interself analogy of the compensation criterion can justify a vice ban whether preferences are hyperbolic or exponential, but subject to the caveat that the person has a binding constraint on borrowing.

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