Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
961687 | Journal of Health Economics | 2008 | 15 Pages |
Abstract
Empirical evidence suggests that people's risk-perceptions are often systematically biased. This paper develops a simple framework to analyse public policy when this is the case. Expected utility (well-being) is shown to depend on both objective and perceived risks (beliefs). The latter are important because of the fear associated with the risk and as a basis for corrective taxation and second-best adjustments. Optimality rules for public provision of risk-reducing investments, “internality-correcting” taxation (e.g. fat taxes) and provision of costly information to reduce people's risk-perception bias are presented.
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Authors
Olof Johansson-Stenman,