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We study the taxation of sin goods in a two-period, three-good model. Individuals can buy health care to compensate for the damages caused by their earlier sin-good consumption. Individuals are myopic and underestimate the effect of the sinful consumption on health; in their second period, they may acknowledge their mistake or persist in their error. We characterize and compare the first-best and the (linear) second-best taxes in these different settings. In particular, we examine how the results are affected by the way sin-good consumption and health care interact in health production technology.

1 We thank Chiara Canta, Francesca Barigozzi and participants to seminars held at the Universities of Toulouse, Cergy-Pontoise, ENS Cachan and at CESifo (Munich) for their comments. This research has been undertaken in part while the second author was visiting the University of Rosario. He thanks the University for its generous hospitality. We gratefully acknowledge the …nancial support of the Fondation du Risque (Chaire Santé, Risque et Assurance, Allianz). The usual disclaimer applies. AbstractWe develop a model where a genetic test reveals whether an individual has a low or high probability of developing a disease. A costly prevention e¤ort allows high-risk agents to decrease this probability. Agents are not obliged to take the test, but must disclose its results to insurers, and taking the test is associated to a discrimination risk.We study the individual decisions to take the test and to undertake the prevention e¤ort as a function of the e¤ort cost and of its e¢ ciency. If e¤ort is observable by insurers, agents undertake the test only if the e¤ort cost is neither too large nor too low. If the e¤ort cost is not observable by insurers, moral hazard increases the value of the test if the e¤ort cost is low. We o¤er several policy recommendations, from the optimal breadth of the tests to policies to do away with the discrimination risk.JEL Codes: D82, I18.

We consider an industry where an upstream firm determines the size of a network used by two downstream firms. We contrast ownership unbundling and legal unbundling, where the upstream firm maximizes its total profit, including the profit of its downstream subsidiary(ies), but does not discriminate between them. Furthermore, each downstream subsidiary maximizes its own profit. We show that ownership separation is more detrimental to welfare than legal unbundling, whether the downstream market is perfectly competitive or not, and whether there are asymmetries in network needs across downstream firms, and downstream investments, or not.