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Pricing externalities

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  • Tideman, T. Nicolaus
  • Plassmann, Florenz
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    Abstract

    The efficiency of mechanisms to control activities with negative externalities is limited by uncertainty about the social costs of these activities. Existing regulatory mechanisms require negotiated compromise about either the prices of activities or the levels to be tolerated. We offer a mechanism in which today's price of an activity is a market-based estimate of future informed beliefs about the social cost of today's activity. This can be expected to increase the precision and accuracy of estimates of the right price and to make it likely that agents will base their decisions on better estimates of the harm they cause.

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    Bibliographic Info

    Article provided by Elsevier in its journal European Journal of Political Economy.

    Volume (Year): 26 (2010)
    Issue (Month): 2 (June)
    Pages: 176-184

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    Handle: RePEc:eee:poleco:v:26:y:2010:i:2:p:176-184

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    Web page: http://www.elsevier.com/locate/inca/505544

    Related research

    Keywords: Pigouvian tax Uncertainty Environmental regulation;

    References

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    1. Berg, Joyce & Forsythe, Robert & Nelson, Forrest & Rietz, Thomas, 2008. "Results from a Dozen Years of Election Futures Markets Research," Handbook of Experimental Economics Results, Elsevier.
    2. John Pezzey, 2003. "Emission Taxes and Tradeable Permits A Comparison of Views on Long-Run Efficiency," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 26(2), pages 329-342, October.
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    5. Monika Piazzesi & Eric Swanson, 2004. "Future prices as risk-adjusted forecasts of monetary policy," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
    6. repec:sae:ecolab:v:16:y:2006:i:2:p:1-2 is not listed on IDEAS
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    13. James D. Hamilton, 2009. "Daily Changes in Fed Funds Futures Prices," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(4), pages 567-582, 06.
    14. repec:reg:rpubli:259 is not listed on IDEAS
    15. Hanson, Robin & Oprea, Ryan & Porter, David, 2006. "Information aggregation and manipulation in an experimental market," Journal of Economic Behavior & Organization, Elsevier, vol. 60(4), pages 449-459, August.
    16. Roos, Michael W.M., 2008. "Predicting the macroeconomic effects of abstract and concrete events," European Journal of Political Economy, Elsevier, vol. 24(1), pages 192-201, March.
    17. Berg, Joyce E. & Nelson, Forrest D. & Rietz, Thomas A., 2008. "Prediction market accuracy in the long run," International Journal of Forecasting, Elsevier, vol. 24(2), pages 285-300.
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