Essays in Welfare and Taxation in Economies with Dispersed Information

In the first chapter we look at a stylized taxation problem and analyze what are the policy implications of lifting some of the assumptions imposed on the planner's beliefs. The framework we consider is a linear-quadratic economy with strategic complementarity, like the one in Morris and Shin (2002). In this environment, we are able to show that when the planner has enough uncertainty about the information structure of the game, i.e. about the information agents have access to, then constrained allocational efficiency and budgetary restrictions cannot both be met in a welfare improving way. We are also able to show that stricter budgetary restrictions limits what the policymaker can do to improve welfare when he has uncertainty regarding the information parameters of the model. Finally, we conclude that the qualitative features of the solution to an optimal taxation problem in this environment is highly dependent on the particulars of the parametrization, corroborating the idea that uncertainty imposes nontrivial limitations on what the policymaker can do.;In the second chapter we study a model of asset pricing in which information is dispersed and look at the welfare properties of the competitive equilibrium. The framework we consider is one in which there is a continuum of risk averse agents choosing their demands for a single risky asset. Traders face uncertainty and maximize conditional on the observed price and private signal. The environment we consider is similar to the ones in Hellwig (1980) and Diamond and Verrechia (1981). The welfare benchmark we use is the team solution, that is, the planner maximizes the aggregate expected utility of traders subject to the constraints on how information can be communicated. We discuss the externalities present in the market outcome; more specifically, a pecuniary, a learning, and an ex-ante volatility externality. We consider two interpretations for the liquidity shock and, under both, we find that the competitive noisy rational expectations equilibrium is not efficient. Moreover, we conclude that regardless of the liquidity shock interpretation, in the equilibrium traders put too much weight on their private information. The comparative statics with respect to the weight on public information depends on how whether the shock is interpreted as aggregate demand of noise traders or as aggregate noisy supply.;Finally, in the third chapter we continue to look at the asset pricing model analyzed in Chapter 2. However, the focus is on how taxes can be used to reduce the inefficiencies that were identified in the previous chapter. We study taxation policies and analyze the mechanism through which the tax affects the equilibrium outcome. Also, we show that a tax on returns can be used to improve upon the competitive solution whenever the planner sets a lump sum transfer to balance excepted budget. This tax can also be used to reduce price informational inefficiency, as measured by semi-strong efficiency. However, we show that in order to achieve semi-strong price informational efficiency the planner needs to use a transaction tax that depends both on the size and monetary value of the trade. Finally, we conclude that when the planner faces budgetary restrictions, there may exist a trade-off between the goals of price informational efficiency and team efficiency.