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Capitation taxes and the regulation of professional services

Author

Listed:
  • Bruno Deffains

    (University Paris Pantheon Assas)

  • Dominique Demougin

    (University Paris Pantheon Assas
    Technical University)

Abstract

We analyze the introduction of capitation taxes as a mean of regulating professional services in a Principal-Agent moral-hazard framework. Although the tax increases cost and lowers participation, we find that it reduces the marginal price associated with quality. The optimal capitation system balances these opposing effects. We use the setup to derive comparative statics results and discuss possible impacts of improvements in ICT on occupational regulation. We find that the results are more ambiguous than often suggested.

Suggested Citation

  • Bruno Deffains & Dominique Demougin, 2023. "Capitation taxes and the regulation of professional services," European Journal of Law and Economics, Springer, vol. 55(2), pages 167-193, April.
    • Handle: RePEc:kap:ejlwec:v:55:y:2023:i:2:d:10.1007_s10657-023-09762-z
    DOI: 10.1007/s10657-023-09762-z
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    More about this item

    Keywords

    Professional regulation; Capitation taxes; Moral hazard; Monitoring;
    All these keywords.

    JEL classification:

    • K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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