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A Note on Emissions Taxes and Incomplete Information

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  • Carlos A. Chavez

    () (Departamento de Economia, Universidad de Concepcion, Concepcion, Chile)

  • John K. Stranlund

    () (Department of Resource Economics, University of Massachusetts Amherst)

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://courses.umass.edu/resec/workingpapers/documents/ResEcWorkingPaper2008-5.pdf
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Bibliographic Info

Paper provided by University of Massachusetts Amherst, Department of Resource Economics in its series Working Papers with number 2008-5.

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Length: 13 pages
Date of creation: Jul 2008
Date of revision:
Handle: RePEc:dre:wpaper:2008-5

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Web page: http://www.umass.edu/resec/
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Related research

Keywords: Emissions Taxes; Incomplete Information; Uncertainty;

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References

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  1. M. L. Weitzman, 1973. "Prices vs. Quantities," Working papers 106, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Kwerel, Evan, 1977. "To Tell the Truth: Imperfect Information and Optimal Pollution Control," Review of Economic Studies, Wiley Blackwell, vol. 44(3), pages 595-601, October.
  3. Laffont, Jean Jacques, 1977. "More on Prices vs. Quantities," Review of Economic Studies, Wiley Blackwell, vol. 44(1), pages 177-82, February.
  4. Stranlund, John K. & Chávez, Carlos A. & Villena, Mauricio G., 2009. "The optimal pricing of pollution when enforcement is costly," Journal of Environmental Economics and Management, Elsevier, vol. 58(2), pages 183-191, September.
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  8. Roberts, Marc J. & Spence, Michael, 1976. "Effluent charges and licenses under uncertainty," Journal of Public Economics, Elsevier, vol. 5(3-4), pages 193-208.
  9. Newell, Richard G. & Pizer, William A., 2003. "Regulating stock externalities under uncertainty," Journal of Environmental Economics and Management, Elsevier, vol. 45(2, Supple), pages 416-432, March.
  10. 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.
  11. 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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  15. Moledina, Amyaz A. & Coggins, Jay S. & Polasky, Stephen & Costello, Christopher, 2003. "Dynamic environmental policy with strategic firms: prices versus quantities," Journal of Environmental Economics and Management, Elsevier, vol. 45(2, Supple), pages 356-376, March.
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Cited by:
  1. 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 for the Study of Labor (IZA).
  2. 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.

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