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Regulation of Stock Externalities with Correlated Abatement Costs

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Author Info

  • Larry Karp

    ()

  • Jiangfeng Zhang

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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Bibliographic 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

Related research

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

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References

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  1. Brozovic, Nicholas & Sunding, David L. & Zilberman, David, 2004. "Prices versus Quantities Reconsidered," 2004 Annual meeting, August 1-4, Denver, CO 20257, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  2. 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.
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Citations

RePEc Biblio mentions

As found on the RePEc Biblio, the curated bibliography for Economics:
  1. > Environmental and Natural Resource Economics > Climate economics > Irreversibility and learning
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Cited by:
  1. Fabien Prieur & Mabel Tidball & Cees A. Withagen, 2011. "Optimal Emission-Extraction Policy in a World of Scarcity and Irreversibility," CESifo Working Paper Series 3512, CESifo Group Munich.
  2. Gilbert Metcalf & David Weisbach, 2008. "The Design of a Carbon Tax," Discussion Papers Series, Department of Economics, Tufts University 0727, Department of Economics, Tufts University.
  3. John Parsons & Luca Taschini, 2013. "The Role of Stocks and Shocks Concepts in the Debate Over Price Versus Quantity," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 55(1), pages 71-86, May.
  4. 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.
  5. Aldy, Joseph E. & Krupnick, Alan J. & Newell, Richard G. & Parry, Ian W.H. & Pizer, William A., 2009. "Designing Climate Mitigation Policy," Discussion Papers dp-08-16, Resources For the Future.
  6. Zylicz, Tomasz, 2010. "Goals and Principles of Environmental Policy," International Review of Environmental and Resource Economics, now publishers, vol. 3(4), pages 299-334, May.
  7. Lawrence H. Goulder & Andrew Schein, 2013. "Carbon Taxes vs. Cap and Trade: A Critical Review," NBER Working Papers 19338, National Bureau of Economic Research, Inc.
  8. 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.
  9. Gilbert E. Metcalf, 2009. "Market-Based Policy Options to Control U.S. Greenhouse Gas Emissions," Journal of Economic Perspectives, American Economic Association, vol. 23(2), pages 5-27, Spring.
  10. John E. Parsons & Luca Taschini, 2011. "Stocks and shocks: a clarification in the debate over price vs. quantity controls for greenhouse gases," LSE Research Online Documents on Economics 37579, London School of Economics and Political Science, LSE Library.
  11. 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.

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