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Externalities And Asymmetric Information

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Author Info

  • GREENWOOD, J.
  • MACFEE, R.P.

Abstract

A reconsideration of the Pigovian theory of regulating externalities via taxation is undertaken for environments with private information. The presence of private information may have no effect on the social optimum; but when it has an impact, it is to cause a group of different agents to share the same production or consumption levels. The model developed provides an appealing characterization of when such situations transpire; they occur when the individuals who desire most to engage in some activity are the ones who society least wants to participate. Since such instances could potentially be regulated by the imposition of quantity controls, this may explain authorities' apparent predilection for quantity limits rather than tax-cum-subsidy schemes to manage many externalities. Copyright 1991, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Bibliographic Info

Paper provided by University of Rochester - Center for Economic Research (RCER) in its series RCER Working Papers with number 173.

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Length: 20 pages
Date of creation: 1989
Date of revision:
Handle: RePEc:roc:rocher:173

Contact details of provider:
Postal: University of Rochester, Center for Economic Research, Department of Economics, Harkness 231 Rochester, New York 14627 U.S.A.

Related research

Keywords: externalities ; information ; taxation ; social choice;

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Cited by:
  1. Favard, P. & Mirabel, F. & Poudou, J.-C., 2002. "Funding for Universal Service Obligations in Electricity Sector: the case of green power development," Cahiers du LASER (LASER Working Papers) 2002.06, LASER (Laboratoire de Science Economique de Richter), Faculty of Economics, University of Montpellier 1.
  2. Roberto Burguet & Preston McAffee, 2005. "License Prices for Financially Constrained Firms," Working Papers 224, Barcelona Graduate School of Economics.
  3. Roberton Williams, 2002. "Prices vs. Quantities vs. Tradable Quantities," NBER Working Papers 9283, National Bureau of Economic Research, Inc.
  4. Michel Poitevin, 1995. "Contract Renegotiation and Organizational Design," Discussion Papers 1135, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  5. Chung-Huang Huang, 1996. "Effectiveness of environmental regulations under imperfect enforcement and the firm's avoidance behavior," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 8(2), pages 183-204, September.

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