Date Added: May 2009
The authors study the link between second-best production efficiency and the constraints on income distribution imposed by private ownership of firms in economies with Ramsey taxation. They review the result of Dasgupta and Stiglitz , Mirrlees , Hahn , and Sadka  about firm-specific profit taxation leading to second-best production efficiency. Problems in the proofs of this result in these papers have been identified by Reinhorn . They provide an alternative, and with some hope a more intuitive, proof of this result. The mechanism employed in the proof is also used to show second-best production efficiency under some configurations of private ownership without any (or at best, uniform) profit taxation.