Prices vs. quantities in a dynamic problem: Externalities from resource extraction
AbstractThis 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.
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Bibliographic InfoArticle provided by Elsevier in its journal Resource and Energy Economics.
Volume (Year): 33 (2011)
Issue (Month): 4 ()
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Web page: http://www.elsevier.com/locate/inca/505569
Environmental policy; Resource policy; Choice of instruments; Asymmetric information; Non-renewable resources; Prices vs. quantities; Taxes; Permits; Uncertainty;
Find related papers by JEL classification:
- D92 - Microeconomics - - Intertemporal Choice - - - 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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