Fair Commodity Taxation

2026-04-20

AI Summary

This study addresses the imbalance in information rent allocation that arises when consumers’ valuations for goods are correlated, necessitating a trade-off between fairness and efficiency. Introducing a taxation mechanism in a multi-principal setting, the work pioneers the use of second-order stochastic dominance to formalize fairness in information rents. Under regularity conditions on type distributions, the authors leverage mechanism design theory to characterize the optimal mechanism. They establish that the frontier mechanism entails no randomization and implements stricter rationing than unregulated monopoly pricing. Furthermore, the paper fully characterizes the set of mechanisms lying on the Pareto frontier of fairness–efficiency trade-offs, thereby providing a theoretical foundation for designing luxury taxation schemes.

Technology Category

• Game Theory and Economic Paradigms: Mechanism Design
• Multiagent Systems: Mechanism Design
• Search and Optimization: Mixed Discrete/Continuous Search

Application Category

• Economics, Online Markets and Human Computation: Fairness, privacy, and diversity in economic environments
• User Modeling, Personalization and Recommendation: Fairness-aware retrieval and ranking
• Security and Privacy: Data transparency and provenance

Abstract

We study economies where consumers interact independently with many monopolists. When consumer valuations over goods are correlated, correlation can distort the induced distribution of consumer surplus (information rents). We identify which shifts in the correlation structure over values makes the induced distribution more or less fair, in the sense of second order stochastic dominance. We then investigate the role taxation can have on information rents, and show the tax authority never benefits from randomizing the allocation of goods. We characterize the set of mechanisms that are on the fairness-efficiency frontier under regularity conditions on the distribution of types. Furthermore, under these conditions all allocations on the fairness-efficiency frontier ration the good more than an unregulated monopolist. Finally, we discuss implications of our model for luxury commodity taxation.

Problem

• fairness
• commodity taxation
• information rents
• correlated valuations
• monopoly

Innovation

• correlated valuations
• information rents
• fairness-efficiency frontier
• commodity taxation
• second-order stochastic dominance