ECN 741: Public Economics Fall 2008 l nt and θ nt are both private information but y nt is observable. In what follows we make a change of variable l nt = y nt θ nt . Deﬁnition 2 An allocation is a sequence of functions ( c n ,y n ) N n =1 c n : ( Θ T ) N-→ R T + y n : ( Θ T ) N-→ R T + such that c nt and y nt are ( θ t 1 ,...,θ t N )-measurable. Denote the set of feasible allocation by FA . Deﬁnition 3 An allocation ( c n ,y n ) N n =1 is feasible if T X t =1 N X n =1 c nt ( θ T 1 ,...,θ T n ) R-t ≤ T X t =1 N X n =1 y nt ( θ T 1 ,...,θ T n ) R-t , R > 1 for all ( θ T 1 ,...,θ T n ) such that π ( θ T 1 ,...,θ T n ) >0 . So far, we know the information structure, we know what allocations are and we know what allocations are feasible. But how does this guide towards a set of tax policies? In other
This is the end of the preview. Sign up
access the rest of the document.
This note was uploaded on 12/10/2011 for the course MAT 121 taught by Professor Wong during the Fall '10 term at SUNY Stony Brook.