Controlling stock externalities : Flexible versus inflexible Pigovian corrections
AbstractThis 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 InfoArticle provided by Elsevier in its journal European Economic Review.
Volume (Year): 36 (1992)
Issue (Month): 6 (August)
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Web page: http://www.elsevier.com/locate/eer
Other versions of this item:
- Ko, Il Dong & Lapan, Harvey E. & Sandler, Todd, 1992. "Controlling Stock Externalities: Flexible Versus Inflexible Pigovian Corrections," Staff General Research Papers 10809, Iowa State University, Department of Economics.
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