Adverse Selection, Emission Permits and Optimal Price Differentiation
AbstractIn this paper, we focus on the adverse selection issue that prevails in an economy when the regulator is not able to observe the type of the abate- ment costs of the firms. The regulator decides the total level of emission that minimizes the total social cost and he sells them to the firms at some di¤erentiated prices. When firms can hide their type relative to their true abatement costs, prices must not only minimize the social cost of the envir- onmental policy. They must also induce the firms to reveal their true type. A striking point of our model is that there is no participation constraint for firms are compelled to be actors of the environmental policy. Another original result concerns the rent, which still benefits to low-cost types, but which appears to be a fee paid by high-cost types.
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Date of creation: 2010
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Regulation; adverse selection; emission permits; abatement costs; price differentiation.;
Find related papers by JEL classification:
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
- Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Costs; Distributional Effects; Employment Effects
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-04-11 (All new papers)
- NEP-CTA-2010-04-11 (Contract Theory & Applications)
- NEP-ENE-2010-04-11 (Energy Economics)
- NEP-ENV-2010-04-11 (Environmental Economics)
- NEP-REG-2010-04-11 (Regulation)
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