Time-inconsistency can arise when a government attempts to convince private sector to use a particular alternative energy (gas, green electricity...) rather than petroleum products. By introducing taxes and feed-in prices, a government would encourage firms and households to switch to an alternative energy rather than use petroleum products. However, even if a government is in favor of increasing alternative energy consumption, it can benefit from considerable financial resources resulting from petroleum product consumption. As a result of these conflicting issues, the private sector may not find the alternative energy policy credible, which prevents the government to implement a socially efficient policy.
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Paper provided by European University Institute in its series Economics Working Papers with number
ECO2007/32.
Length: Date of creation: 2007 Date of revision: Handle: RePEc:eui:euiwps:eco2007/32
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Find related papers by JEL classification: E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
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