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Prices vs. quantities in a dynamic problem: Externalities from resource extraction

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  • Briggs, R.J.

Abstract

This paper shows how a stationary tax policy can optimally address a flow externality associated with resource extraction when the policymaker faces asymmetric information. In the model I consider, the policymaker must set policy in each period before the realization of a price shock. Resource owners then learn the value of the shock, and the owners choose extraction quantities. The optimal policy is a stationary tax rule that responds to a positive shock to the current price by reducing next period's tax rate. Intuitively, a reduction in next period's tax rate makes extraction next period less expensive and thus dampens the resource owner's current response to a price increase. This policy is robust to some, but not necessarily all, boundary solutions.

Suggested Citation

  • Briggs, R.J., 2011. "Prices vs. quantities in a dynamic problem: Externalities from resource extraction," Resource and Energy Economics, Elsevier, vol. 33(4), pages 843-854.
    • Handle: RePEc:eee:resene:v:33:y:2011:i:4:p:843-854
    DOI: 10.1016/j.reseneeco.2011.06.001
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    References listed on IDEAS

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    More about this item

    Keywords

    Environmental policy; Resource policy; Choice of instruments; Asymmetric information; Non-renewable resources; Prices vs. quantities; Taxes; Permits; Uncertainty;
    All these keywords.

    JEL classification:

    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
    • Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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