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Regulation of Stock Externalities with Correlated Abatement Costs

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Author Info
Larry Karp ()
Jiangfeng Zhang

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Abstract

We study a dynamic regulation model where firms’ actions contribute to a stock externality. The regulator and firms have asymmetric information about serially correlated abatement costs. With price-based policies such as taxes, or if firms trade quotas efficiently, the regulator learns about the evolution of both the stock and costs. This ability to learn about costs is important in determining the ranking of taxes and quotas, and in determining the value of a feedback rather than an open-loop policy. For a range of parameter values commonly used in global warming studies, taxes dominate quotas, regardless of whether the regulator uses an open-loop or a feedback policy, and regardless of the extent of cost correlation. Copyright Springer 2005

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File URL: http://hdl.handle.net/10.1007/s10640-005-4678-6
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Publisher Info
Article provided by European Association of Environmental and Resource Economists in its journal Environmental & Resource Economics.

Volume (Year): 32 (2005)
Issue (Month): 2 (October)
Pages: 273-300
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Handle: RePEc:kap:enreec:v:32:y:2005:i:2:p:273-300

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Web page: http://www.springerlink.com/link.asp?id=100263

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Related research
Keywords: asymmetric information; choice of instruments; correlated costs; learning; pollution control; C61; D8; H21; Q28;

References listed on IDEAS
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  1. Karp, Larry & Zhang, Jiangfeng, 2006. "Regulation with anticipated learning about environmental damages," Journal of Environmental Economics and Management, Elsevier, vol. 51(3), pages 259-279, May. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Gilbert E. Metcalf & Sergey Paltsev & John Reilly & Henry Jacoby & Jennifer F. Holak, 2008. "Analysis of U.S. Greenhouse Gas Tax Proposals," NBER Working Papers 13980, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Gilbert E. Metcalf, 2008. "Designing A Carbon Tax to Reduce U.S. Greenhouse Gas Emissions," NBER Working Papers 14375, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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