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A Possible Conflict between Economic Efficiency and Political Pressure

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  • Phil Simmons
  • Oscar Cacho

Abstract

A model of a production externality between two industries facing price uncertainty is specified and a Pigouvian tax introduced and solved using First-Order Conditions (FOC). This solution is then used as a baseline for comparison with results for the level of tax found using an Evolutionary Algorithm (EA) where government, as the policy setter, is facing political pressure in the selective environment of the electorate. It is found in the EA solution that if a government faces political pressure in an uncertain economic environment then the settings for the tax may reflect political caution rather than community preferences. Copyright Springer Science + Business Media, Inc. 2005

Suggested Citation

  • Phil Simmons & Oscar Cacho, 2005. "A Possible Conflict between Economic Efficiency and Political Pressure," Computational Economics, Springer;Society for Computational Economics, vol. 26(2), pages 129-140, October.
    • Handle: RePEc:kap:compec:v:26:y:2005:i:2:p:129-140
    DOI: 10.1007/s10614-005-6869-1
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    References listed on IDEAS

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    1. Baumol, William J, 1972. "On Taxation and the Control of Externalities," American Economic Review, American Economic Association, vol. 62(3), pages 307-322, June.
    2. Cacho, Oscar J. & Simmons, Phil, 1999. "A genetic algorithm approach to farm investment," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 43(3), pages 1-18, September.
    3. Gary S. Becker, 1983. "A Theory of Competition Among Pressure Groups for Political Influence," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 98(3), pages 371-400.
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