Tax policy and entrepreneurial entry with information asymmetry and learning

Abstract

We study a market with entrepreneurial and worker entry where both entrepreneurs' abilities and workers' qualities are private information. We develop an agent-based computable model to mimic the mechanisms described in a previous analytical model (Boadway and Sato in Int Tax Public Finance 18(2):166-192, 2011). Then, we introduce the possibility that agents may learn over time about abilities and qualities of other agents, by means of Bayesian inference over informative signals. We show how such different assumptions affect the optimality of second-best tax and subsidy policies. While with no information, it is optimal to have a subsidy to labour and a simultaneous tax on entrepreneurs to curb excessive entry, with learning the detrimental effects of excessive entry are partly compensated by surplus-increasing faster learning.

The Control Strategies for Information Asymmetry Problems Among Investing Institutions, Investors, and Entrepreneurs in Venture Capital

“… Yong (2012) conducted a simulation study on the issue of information asymmetry and found that investors would choose the method of average valuation for investment activities in the case of asymmetric information, which would affect the development of some enterprises with high demand for cash flow; however, for enterprises with low demand for cash flow, over-investment would occur ( Yong, 2012 ; Abidoye et al, 2019 ). d’Andria (2019) focused on the information asymmetry in the credit and labor markets at the same time. Considering the learning over time and its impact on tax and subsidy policies, simulation analysis was utilized to test the impact of tax policies on the entrepreneurs and subsidies on labor incomes ( d’Andria, 2019 ).…”

“… d’Andria (2019) focused on the information asymmetry in the credit and labor markets at the same time. Considering the learning over time and its impact on tax and subsidy policies, simulation analysis was utilized to test the impact of tax policies on the entrepreneurs and subsidies on labor incomes ( d’Andria, 2019 ). Based on the causality test of repurchase information and enterprise earnings, Lee and Mauck (2018) connected the informed repurchase to the asymmetry of corporate information and proposed a new informed repurchase measure.…”