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A Note on Emissions Taxes and Incomplete Information

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  • Carlos Chávez

    ()

  • John Stranlund

    ()

Abstract

In contrast with what we perceive is the conventional wisdom about setting emissions taxes under uncertainty, we demonstrate that setting a uniform tax equal to expected marginal damage is not generally efficient under incomplete information about firms’ abatement costs and damages from pollution. We show that efficient taxes will deviate from expected marginal damage if there is uncertainty about the slopes of the marginal abatement costs of regulated firms. Moreover, efficient emissions tax rates will vary across firms if a regulator can use observable firm-level characteristics to gain some information about how the firms’ marginal abatement costs vary.

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File URL: http://hdl.handle.net/10.1007/s10640-008-9257-1
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Bibliographic Info

Article provided by European Association of Environmental and Resource Economists in its journal Environmental and Resource Economics.

Volume (Year): 44 (2009)
Issue (Month): 1 (September)
Pages: 137-144

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Handle: RePEc:kap:enreec:v:44:y:2009:i:1:p:137-144

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

Related research

Keywords: Emissions taxes; Asymmetric information; Incomplete information; Uncertainty; L51; Q28;

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References

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  4. Brita Bye & Karine Nyborg, 2003. "Are Differentiated Carbon Taxes Inefficient? A General Equilibrium Analysis," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 95-112.
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  9. Dasgupta, Partha & Hammond, Peter & Maskin, Eric, 1980. "On Imperfect Information and Optimal Pollution Control," Review of Economic Studies, Wiley Blackwell, vol. 47(5), pages 857-60, October.
  10. Baranzini, Andrea & Goldemberg, Jose & Speck, Stefan, 2000. "A future for carbon taxes," Ecological Economics, Elsevier, vol. 32(3), pages 395-412, March.
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Cited by:
  1. Guglielmo Maria Caporale & Christophe Rault & Robert Sova & Anamaria Sova, 2010. "Determinants of Pollution Abatement and Control Expenditure in Romania: A Multilevel Analysis," CESifo Working Paper Series 3255, CESifo Group Munich.
  2. Stephen Holland & Andrew J. Yates, 2014. "Optimal Trading Ratios for Pollution Permit Markets," NBER Working Papers 19780, National Bureau of Economic Research, Inc.
  3. Guglielmo Caporale & Christophe Rault & Robert Sova & Anamaria Sova, 2010. "Pollution Abatement And Control Expenditure In Romania: A Multilevel Analysis," William Davidson Institute Working Papers Series wp994, William Davidson Institute at the University of Michigan.

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