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Second Best Environmental Policies under Uncertainty

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  • Fabio Antoniou
  • Panos Hatzipanayotou

    ()

  • Phoebe Koundouri

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 University of Cambridge, Department of Land Economics in its series Environmental Economy and Policy Research Working Papers with number 49.2010.

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Date of creation: 2010
Date of revision: 2010
Handle: RePEc:lnd:wpaper:492010

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

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