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Controlling a Stock Pollutant with Endogenous Abatement Capital and Asymmetric Information

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Author Info
Larry Karp (University of California, Berkeley and Giannini Foundation)
Jiangfeng Zhang (Asian Development Bank)

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Abstract

Non-strategic firms with rational expectations make investment and emissions decisions. The investment rule depends on firms' beliefs about future emissions policies. We compare emissions taxes and quotas when the (strategic) regulator and (nonstrategic) firms have asymmetric information about abatement costs, and all agents use Markov Perfect decision rules. Emissions taxes create a secondary distortion at the investment stage, unless a particular condition holds; emissions quotas do not create a secondary distortion. We solve a linear-quadratic model calibrated to represent the problem of controlling greenhouse gases. The endogeneity of abatement capital favors taxes, and it increases abatement.

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Publisher Info
Paper provided by Department of Agricultural & Resource Economics, UC Berkeley in its series Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series with number 928.

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Date of creation: 10 Dec 2002
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Handle: RePEc:cdl:agrebk:928

Note: oai:cdlib1:are_ucb-1048
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Related research
Keywords: pollution control; investment; asymmetric information; rational expectations; choice of instruments;

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References listed on IDEAS
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. Larry Karp & Jiangfeng Zhang, 2003. "Regulation of Stock Externalities with Correlated Costs," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series 892R, Department of Agricultural & Resource Economics, UC Berkeley. [Downloadable!]
  2. Jason G. Cummins & Kevin A. Hassett & R. Glenn Hubbard, 1996. "Tax Reforms and Investment: A Cross-Country Comparison," NBER Working Papers 5232, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Pizer, William A., 1999. "The optimal choice of climate change policy in the presence of uncertainty," Resource and Energy Economics, Elsevier, vol. 21(3-4), pages 255-287, August. [Downloadable!] (restricted)
  4. Randy A Becker & Vernon Henderson, 1999. "Costs of Air Quality Regulation," Working Papers 99-9, Center for Economic Studies, U.S. Census Bureau. [Downloadable!]
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  5. Buonanno, Paolo & Carraro, Carlo & Galeotti, Marzio, 2003. "Endogenous induced technical change and the costs of Kyoto," Resource and Energy Economics, Elsevier, vol. 25(1), pages 11-34, February. [Downloadable!] (restricted)
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