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Second Best Environmental Policies under Uncertainty

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  • Panos Hatzipanayotou
  • Panos Hatzipanayotou

    (Athens University of Economics and Business and CES-ifo)

  • Fabio Antoniou

    (Athens University of Economics and Business)

  • Phoebe Koundouri

    (Athens University of Economics and Busines)

Abstract

We construct a strategic trade model of an international duopoly, whereby production by exporting firms generates a local pollutant. Governments use environmental policies, i.e., an emissions standard or a tax, to control pollution and for rent shifting purposes. Contrary to their firm, however, governments are unable to perfectly foresee the actual level of demand, the cost of abatement and the damage caused from pollution. Under these modes of uncertainty we derive sufficient conditions under which the governments optimally choose an emissions tax over an emissions standard.

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Bibliographic Info

Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2010.3.

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Date of creation: Jan 2010
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Handle: RePEc:fem:femwpa:2010.3

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Keywords: Strategic Environmental Policy; Pollution; Choice of Policy Instrument; Uncertainty;

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  1. Barrett, Scott, 1994. "Strategic environmental policy and intrenational trade," Journal of Public Economics, Elsevier, vol. 54(3), pages 325-338, July.
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