OPTIMAL TAXATION OF A FOREIGN MONOPOLIST WITH UNKNOWN COSTS

Aditya Bhattacharjea

No 42, Working papers from Centre for Development Economics, Delhi School of Economics

Abstract: Optimal taxes on imports from a foreign monopolist have been frequently analysed. However, they are sensitive to the monopolist's costs and any export subsidy it receives, both of which are likely to be unknown to the importing country's government. This paper adapts the regulatory mechanism of Baron and Myerson (1982) to this situation, where the firm cannot be subjected to the same kind of regulation as a domestic monopolist. It is shown that the optimal mechanism always involves a license fee and is revenue-neutral. These features have important implications for the practicability of the mechanism.

Pages: 29 pages
Date: 1997-01
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