A Note on Pareto-Optimal Taxation Mechanism in Noncooperative Strategic Bilateral Exchange

Ludovic A. Julien and Gagnie Yebarth
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Ludovic A. Julien: EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique
Gagnie Yebarth: EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique

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Abstract: This paper investigates the taxation mechanism implemented in strategic bilateral exchange by Gabszewicz and Grazzini (JPET, 1999). These authors show that endowment taxation with transfers can implement a Pareto-optimal allocation when the preferences of traders are represented by some specific homothetic utility functions. We show that this taxation mechanism can also implement a Pareto-optimal allocation when the preferences of traders are represented by non homothetic utility functions. To this end, we consider a class of quasi-linear utility functions. Furthermore, we illustrate that, with quasi-linear utility functions, by introducing heterogeneity between traders, there are other environments in which this taxation mechanism implements a Pareto-optimal outcome.

Keywords: Taxation; Pareto optimality; Cournot-Nash equilibrium (search for similar items in EconPapers)
Date: 2026
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Published in Mathematical Social Sciences, In press

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05427342

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