Postprint version. Published in Economics Letters, Volume 63, Issue 2, May 1, 1999, pages 235-238. Copyright © 1999 Elsevier Inc. All rights reserved. The definitive version is available at http://dx.doi.org/10.1016/S0165-1765(99)00018-X.
NOTE: At the time of publication, the author Stephen Hamilton was not yet affiliated with Cal Poly.
It is well known that ad valorem taxes welfare-dominate specific taxes under monopoly. This paper demonstrates that the comparative welfare ranking of the two instruments reverses under monopsony. The relative performance of alternative tax forms is thus highly sensitive to whether the buyer or seller has market power.