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Taxes and Quotas for a Stock Pollutant with Multiplicative Uncertainty

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Author Info
Michael Hoel (University of Oslo, Norway)
Larry Karp (Department of Agriculture and Resource Economics, Berkeley, California)

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

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Handle: RePEc:fem:femwpa:1999.15

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

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Find related papers by JEL classification:
H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy

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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. Roberts, Marc J. & Spence, Michael, 1976. "Effluent charges and licenses under uncertainty," Journal of Public Economics, Elsevier, vol. 5(3-4), pages 193-208. [Downloadable!] (restricted)
  2. 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. [Downloadable!] (restricted)
  3. Karp, Larry S. & Zhang, Jiangfeng, 1999. "Regulation of stock externalities with learning," CUDARE Working Paper Series 892, University of California at Berkeley, Department of Agricultural and Resource Economics and Policy.
  4. 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. [Downloadable!] (restricted)
  5. Maddison, David, 1995. "A cost-benefit analysis of slowing climate change," Energy Policy, Elsevier, vol. 23(4-5), pages 337-346. [Downloadable!] (restricted)
  6. Falk Ita & Mendelsohn Robert, 1993. "The Economics of Controlling Stock Pollutants: An Efficient Strategy for Greenhouse Gases," Journal of Environmental Economics and Management, Elsevier, vol. 25(1), pages 76-88, July. [Downloadable!] (restricted)
  7. Stavins, Robert N., 1996. "Correlated Uncertainty and Policy Instrument Choice," Journal of Environmental Economics and Management, Elsevier, vol. 30(2), pages 218-232, March. [Downloadable!] (restricted)
  8. Hoel, Michael & Karp, Larry, 2002. "Taxes versus quotas for a stock pollutant," Resource and Energy Economics, Elsevier, vol. 24(4), pages 367-384, November. [Downloadable!] (restricted)
    Other versions:
  9. Malcomson, James M, 1978. "Prices vs. Quantities: A Critical Note on the Use of Approximations," Review of Economic Studies, Blackwell Publishing, vol. 45(1), pages 203-07, February. [Downloadable!] (restricted)
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Cited by:
(explanations, 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 & Jinhua Zhao, 2008. "A Proposal for the Design of the Successor to the Kyoto Protocol," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series 1065, Department of Agricultural & Resource Economics, UC Berkeley. [Downloadable!]
  2. Jon Hovi og Bjart Holtsmark, 2005. "Cap-and-Trade or Carbon Taxes? The Feasibility of Enforcement and the Effects of Non-Compliance," Discussion Papers 436, Research Department of Statistics Norway. [Downloadable!]
    Other versions:
  3. Zhang, Jiangfeng, 2001. "Dynamic Water Regulation Under Endogenous Irrigation Investment and Production Uncertainty," 2001 Annual meeting, August 5-8, Chicago, IL 20661, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  4. Larry Karp & Jiangfeng Zhang, 2008. "Taxes Versus Quantities for a Stock Pollutant with Endogenous Abatement Costs and Asymmetric Information," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series 1064, Department of Agricultural & Resource Economics, UC Berkeley. [Downloadable!]
  5. Larry Karp & Xuemei Liu, . "Valuing Tradable CO2 Permits for OECD Countries," Working Papers 1999.31, Fondazione Eni Enrico Mattei. [Downloadable!]
    Other versions:
  6. 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!]
  7. Carlos Chávez & John Stranlund, 2009. "A Note on Emissions Taxes and Incomplete Information," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 44(1), pages 137-144, September. [Downloadable!] (restricted)
  8. Torstein Bye and Annegrete Bruvoll, 2008. "Multiple instruments to change energy behaviour: The emperor’s new clothes?," Discussion Papers 549, Research Department of Statistics Norway. [Downloadable!]
  9. Larry Karp & Jinhua Zhao, 2007. "A Proposal to Reform the Kyoto Protocol: the Role of Escape Clauses and Foresight," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series 1050, Department of Agricultural & Resource Economics, UC Berkeley. [Downloadable!]
  10. Thomas Aronsson & Sören Blomquist, 2003. "On Environmental Taxation under Uncertain Environmental Damage," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 24(2), pages 183-196, February. [Downloadable!] (restricted)
  11. Sonja Peterson, 2004. "The Contribution of Economics to the Analysis of Climate Change and Uncertainty: A Survey of Approaches and Findings," Kiel Working Papers 1212, Kiel Institute for the World Economy. [Downloadable!]
  12. Vetter, Henrik, 2000. "Prices vs. Quantities in Monopolistic Competition," Unit of Economics Working papers 24203, Royal Veterinary and Agricultural University, Food and Resource Economic Institute. [Downloadable!]
  13. Pizer, William & Newell, Richard & Zhang, Jiangfeng, 2003. "Managing Permit Markets to Stabilize Prices," Discussion Papers dp-03-34, Resources For the Future. [Downloadable!]
    Other versions:
  14. Michael Hoel & Larry Karp, 2001. "Taxes versus Quotas for a Stock Pollutant," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series 855, Department of Agricultural & Resource Economics, UC Berkeley. [Downloadable!]
    Other versions:
  15. Bernardo Moreno Jiménez & José Luis Torres Chacón, 2005. "Output subsidies and quotas under uncertainty and firm heterogeneity," Economic Working Papers at Centro de Estudios Andaluces E2005/24, Centro de Estudios Andaluces. [Downloadable!]
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