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Controlling stock externalities : Flexible versus inflexible Pigovian corrections

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  • Ko, Il-Dong
  • Lapan, Harvey E.
  • Sandler, Todd

Abstract

This paper examines the use of inflexible Pigovian taxes/subsidies to correct a stock externality. An optimal control framework is first used to characterize the first-best path for a Pigovian correction that varies continuously. This first-best path is then contrasted with inflexible second-best paths in which the level of the correction can be set only once or twice. The optimal timing of a fixed one-time correction is also studied. A deferment of this correction is desirable when the initial state of the environmental stock is less deteriorated than the first-best steady state or the adjustment costs are sufficiently great.

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Bibliographic Info

Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 36 (1992)
Issue (Month): 6 (August)
Pages: 1263-1276

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Handle: RePEc:eee:eecrev:v:36:y:1992:i:6:p:1263-1276

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Web page: http://www.elsevier.com/locate/eer

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Cited by:
  1. Franz Wirl, 1994. "Efficient introduction of Pigovian taxes," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 4(6), pages 535-544, December.
  2. Raghbendra Jha & John Whalley, 2001. "The Environmental Regime in Developing Countries," NBER Chapters, in: Behavioral and Distributional Effects of Environmental Policy, pages 217-250 National Bureau of Economic Research, Inc.
  3. Farmer, Amy & Kahn, James R. & McDonald, Judith A. & O'Neill, Robert, 2001. "Rethinking the optimal level of environmental quality: justifications for strict environmental policy," Ecological Economics, Elsevier, vol. 36(3), pages 461-473, March.
  4. Dominique Prunetti, 1998. "Taxation dynamique dans le cadre d'une industrie polluante concurrentielle et de deux variables de contrôle," Revue d'Économie Industrielle, Programme National Persée, vol. 83(1), pages 167-181.

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