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Taxes and Quotas for a Stock Pollutant with Multiplicative Uncertainty

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  • Michael Hoel

    (University of Oslo, Norway)

  • Larry Karp

    (Department of Agriculture and Resource Economics, Berkeley, California)

Abstract

We compare taxes and quotas when firms and the regulator have asymmetric information about abatement costs. Damages are caused by a stock pollutant. Uncertainty enters multiplicatively, i.e. it affects the slope rather than the intercept of abatement costs. We calibrate the model using cost and damage estimates of greenhouse gases. As with additive uncertainty, taxes dominate quotas. The advantage of taxes is much greater with mulitiplicative, compared to additive uncertainty.

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Bibliographic Info

Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 1999.15.

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Date of creation: Feb 1999
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Handle: RePEc:fem:femwpa:1999.15

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Keywords: Pollution control; asymmetric information; taxes and quotas; stochastic control; global warming; multiplicative disturbances;

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  1. Nordhaus, William D, 1991. "To Slow or Not to Slow: The Economics of the Greenhouse Effect," Economic Journal, Royal Economic Society, vol. 101(407), pages 920-37, July.
  2. Hoel, Michael & Karp, Larry, 2002. "Taxes versus quotas for a stock pollutant," Resource and Energy Economics, Elsevier, vol. 24(4), pages 367-384, November.
  3. Maddison, David, 1995. "A cost-benefit analysis of slowing climate change," Energy Policy, Elsevier, vol. 23(4-5), pages 337-346.
  4. Weitzman, Martin L, 1978. "Reply to "Prices vs. Quantities: A Critical Note on the Use of Approximations" by James M. Malcomson," Review of Economic Studies, Wiley Blackwell, vol. 45(1), pages 209-10, February.
  5. John Reilly & Kenneth Richards, 1993. "Climate change damage and the trace gas index issue," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 3(1), pages 41-61, February.
  6. William D. Nordhaus, 1992. "Rolling the 'Dice': An Optimal Transition Path for Controlling Greenhouse Gases," Cowles Foundation Discussion Papers 1019, Cowles Foundation for Research in Economics, Yale University.
  7. Watson, William D. & Ridker, Ronald G., 1984. "Losses from effluent taxes and quotas under uncertainty," Journal of Environmental Economics and Management, Elsevier, vol. 11(4), pages 310-326, December.
  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. Stavins, Robert N., 1996. "Correlated Uncertainty and Policy Instrument Choice," Journal of Environmental Economics and Management, Elsevier, vol. 30(2), pages 218-232, March.
  10. Yohe, Gary Wynn, 1977. "Comparisons of price and quantity controls: A survey," Journal of Comparative Economics, Elsevier, vol. 1(3), pages 213-233, September.
  11. Malcomson, James M, 1978. "Prices vs. Quantities: A Critical Note on the Use of Approximations," Review of Economic Studies, Wiley Blackwell, vol. 45(1), pages 203-07, February.
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