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Author: | Hagen, K.P. Sannarnes, J.G. |
Title: | Taxation of uncertain business profits, private risk markets and optimal allocation of risk |
Journal: | Journal of Public Economics
2007 : AUG, VOL. 91:7-8, p. 1507-1517 |
Index terms: | public policy moral hazard venture capital taxation risk |
Language: | eng |
Abstract: | This paper explores what happens if the government bears some of the risk through a profit tax (here as: p-tax) when the risk sharing in the venture capital market is incomplete due to non-observability of effort and moral hazard. In case the external equity investors can enforce exclusive contracts with the entrepreneurs, the risk relief through a p-tax will lead to too much insurance and too low effort as compared with a second best optimal solution etc. |
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