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A Note on Emissions Taxes and Incomplete Information

Author

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  • Chavez, Carlos A.
  • Stranlund, John K.

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.

Suggested Citation

  • Chavez, Carlos A. & Stranlund, John K., 2008. "A Note on Emissions Taxes and Incomplete Information," Working Paper Series 42129, University of Massachusetts, Amherst, Department of Resource Economics.
  • Handle: RePEc:ags:umamwp:42129
    DOI: 10.22004/ag.econ.42129
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    References listed on IDEAS

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    Cited by:

    1. Elnaboulsi, J.C. & Daher, W. & Sağlam, Y., 2018. "On the social value of publicly disclosed information and environmental regulation," Resource and Energy Economics, Elsevier, vol. 54(C), pages 1-22.
    2. Holland, Stephen P. & Yates, Andrew J., 2015. "Optimal trading ratios for pollution permit markets," Journal of Public Economics, Elsevier, vol. 125(C), pages 16-27.
    3. Caporale, Guglielmo Maria & Rault, Christophe & Sova, Robert & Sova, Anamaria, 2010. "Pollution Abatement and Control Expenditure in Romania: A Multilevel Analysis," IZA Discussion Papers 5041, Institute of Labor Economics (IZA).
    4. Woerman, Matt, 2023. "Linking carbon markets with different initial conditions," Journal of Environmental Economics and Management, Elsevier, vol. 119(C).
    5. Jihad C Elnaboulsi & W Daher & Y Saglam, 2015. "On the Social Value of Disclosed Information and Environmental Regulation," Working Papers hal-01377918, HAL.
    6. 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.

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    More about this item

    Keywords

    Environmental Economics and Policy; Public Economics; Risk and Uncertainty;
    All these keywords.

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy

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