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Myopia, regrets, and risky behaviors

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  • PESTIEAU, Pierre
  • PONTHIERE, Grégory
Abstract
This paper examines how a government should intervene when agents make, for different reasons, choices that have long term detrimental effects on their survival prospects. We consider an economy where some agents make risky choices (here sin good consumption) out of myopia, and regret their choices later on, whereas other agents make, because of their impatience, the same risky choices, which they never regret. We argue that, in the first-best, a government should only interfere with behaviors that agents regret, but not with other behaviors. In the second-best, asymmetric information and redistributive concerns imply interference not only with myopic behaviors, but also with impatience-based behaviors. Finally, we introduce heterogeneity in individual productivity, and show that the optimal tax on the sin good depends on the size of the myopic group, on the reactivity of sin good consumption to tax changes, and on the extent to which sin good consumption is correlated with labor earnings.
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Suggested Citation

  • PESTIEAU, Pierre & PONTHIERE, Grégory, 2012. "Myopia, regrets, and risky behaviors," LIDAM Reprints CORE 2452, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvrp:2452
    DOI: 10.1007/s10797-011-9188-6
    Note: In : International Tax and Public Finance, 19(2), 288-317, 2012
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    Cited by:

    1. Luis Rodrigo Arnabal, 2021. "Optimal design of sin taxes in the presence of nontaxable sin goods," Health Economics, John Wiley & Sons, Ltd., vol. 30(7), pages 1580-1599, July.
    2. Pierre Pestieau & Gregory Ponthiere, 2012. "The Public Economics of Increasing Longevity," Hacienda Pública Española / Review of Public Economics, IEF, vol. 200(1), pages 41-74, March.
    3. Pierre Pestieau & Gregory Ponthiere, 2014. "Policy Implications of Changing Longevity," CESifo Economic Studies, CESifo Group, vol. 60(1), pages 178-212.
    4. Chu-chuan Cheng & Hsun Chu, 2018. "Optimal policies for sin goods and health care: Tax or subsidy?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 25(2), pages 412-429, April.
    5. Leroux, Marie-Louise & Pestieau, Pierre & Ponthière, Grégory, 2015. "Longévité différentielle et redistribution : enjeux théoriques et empiriques," L'Actualité Economique, Société Canadienne de Science Economique, vol. 91(4), pages 465-497, Décembre.
    6. Justina Klimaviciute, 2024. "(No) time to be healthy: Optimal policy with time and monetary investments in health," Health Economics, John Wiley & Sons, Ltd., vol. 33(3), pages 410-431, March.

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    More about this item

    JEL classification:

    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • J18 - Labor and Demographic Economics - - Demographic Economics - - - Public Policy
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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