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Weitzman revisited: Emission standards vs. taxes with uncertain control costs and market power of polluting firms

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  • Clemens Heuson

Abstract

It is well known that uncertainty concerning firms’ costs as well as market power of the latter have to be taken into account in order to design and choose environmental policy instruments in an optimal way. As a matter of fact, in most actual regulation settings the policy maker has to face both of these complications simultaneously. However, hitherto environmental economic theory has restricted to either of them when submitting conventional policy instruments to a comparative analysis. The article at hand takes a first step in closing this gap. It investigates the welfare effects of emission standards and taxes against the background of uncertain emission control costs and various degrees of the polluting firms’ market power.

Suggested Citation

  • Clemens Heuson, 2008. "Weitzman revisited: Emission standards vs. taxes with uncertain control costs and market power of polluting firms," Discussion Paper Series 299, Universitaet Augsburg, Institute for Economics.
    • Handle: RePEc:aug:augsbe:0299
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    References listed on IDEAS

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    1. Martin L. Weitzman, 1974. "Prices vs. Quantities," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 41(4), pages 477-491.
    2. Barnett, A H, 1980. "The Pigouvian Tax Rule under Monopoly," American Economic Review, American Economic Association, vol. 70(5), pages 1037-1041, December.
    3. James M. Malcomson, 1978. "Prices vs. Quantities: A Critical Note on the Use of Approximations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 45(1), pages 203-207.
    4. Requate, Till, 2005. "Environmental Policy under Imperfect Competition: A Survey," Economics Working Papers 2005-12, Christian-Albrechts-University of Kiel, Department of Economics.
    5. Peter Tisato, 1994. "Pollution standards vs charges under uncertainty," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 4(3), pages 295-304, June.
    6. R. Simpson, 1995. "Optimal pollution taxation in a Cournot duopoly," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 6(4), pages 359-369, December.
    7. Buchanan, James M, 1969. "External Diseconomies, Corrective Taxes, and Market Structure," American Economic Review, American Economic Association, vol. 59(1), pages 174-177, March.
    8. Martin L. Weitzman, 1978. "Reply to "Prices vs. Quantities: A Critical Note on the Use of Approximations" by James M. Malcomson," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 45(1), pages 209-210.
    9. Baumol,William J. & Oates,Wallace E., 1988. "The Theory of Environmental Policy," Cambridge Books, Cambridge University Press, number 9780521322249.
    10. Helfand, Gloria E, 1991. "Standards versus Standards: The Effects of Different Pollution Restrictions," American Economic Review, American Economic Association, vol. 81(3), pages 622-634, June.
    11. Adar, Zvi & Griffin, James M., 1976. "Uncertainty and the choice of pollution control instruments," Journal of Environmental Economics and Management, Elsevier, vol. 3(3), pages 178-188, October.
    12. Till Requate, 1993. "Pollution control in a Cournot duopoly via taxes or permits," Journal of Economics, Springer, vol. 58(3), pages 255-291, October.
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    Cited by:

    1. Clemens Heuson, 2008. "Emission standards vs. taxes: The case of asymmetric Cournot duopoly and uncertain control costs," Working Papers 045, Bavarian Graduate Program in Economics (BGPE).
    2. Fabio Antoniou & Nikos Tsakiris, 2016. "On the Informational Superiority of Quantities Over Prices in the Presence of an Externality," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 65(1), pages 227-250, September.

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    More about this item

    Keywords

    Cournot oligopoly; external diseconomies of pollution; cost uncertainty; emission standard; emission tax;
    All these keywords.

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D89 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Other
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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