IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this article

Simple Pricing Schemes for Pollution Control under Asymmetric Information

Listed author(s):
  • Kennedy Peter W

    ()

    (University of Victoria)

  • Laplante Benoit

    ()

    (World Bank)

  • Whittington Dale

    ()

    (University of North Carolina at Chapel Hill)

Most policies for pricing pollution under asymmetric information proposed in the literature to date are rarely if ever used in practice. This is likely due to their complexity. We investigate the scope for using somewhat simpler policies that are more closely related to pricing schemes already used by regulators in many jurisdictions. These schemes have a discrete block pricing (DBP) structure whereby a given unit price for pollution is applied up to a specified level of pollution for any given polluter, and a higher unit price is applied to any pollution from that polluter above the specified level. If the same price schedule is applied uniformly to all firms, we call it UDBP. We derive the optimal UDBP schedule for any given number of price blocks. We also derive the optimal limiting case of the UDBP schedule (with an infinite number of price blocks) as a uniform linear increasing marginal price schedule (ULIMP). The optimal ULIMP scheme strikes a balance between the information-related benefits of increasing marginal prices on one hand, and an increase in aggregate abatement cost, due to the non-equalization of marginal abatement costs across firms, on the other. In particular, the optimal schedule is steeper with larger aggregate uncertainty about marginal abatement costs, and flatter with more observable heterogeneity across firms. We then compare our price schemes with those proposed by Weitzman (1978) and Roberts and Spence (1976).

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: https://www.degruyter.com/view/j/bejeap.2010.10.1/bejeap.2010.10.1.1685/bejeap.2010.10.1.1685.xml?format=INT
Download Restriction: For access to full text, subscription to the journal or payment for the individual article is required.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by De Gruyter in its journal The B.E. Journal of Economic Analysis & Policy.

Volume (Year): 10 (2010)
Issue (Month): 1 (February)
Pages: 1-37

as
in new window

Handle: RePEc:bpj:bejeap:v:10:y:2010:i:1:n:12
Contact details of provider: Web page: https://www.degruyter.com

Order Information: Web: https://www.degruyter.com/view/j/bejeap

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.:

as
in new window


  1. Martin L. Weitzman, 1974. "Prices vs. Quantities," Review of Economic Studies, Oxford University Press, vol. 41(4), pages 477-491.
  2. Tracy R. Lewis, 1996. "Protecting the Environment When Costs and Benefits Are Privately Known," RAND Journal of Economics, The RAND Corporation, vol. 27(4), pages 819-847, Winter.
  3. Karp Larry & Livernois John, 1994. "Using Automatic Tax Changes to Control Pollution Emissions," Journal of Environmental Economics and Management, Elsevier, vol. 27(1), pages 38-48, July.
  4. Weitzman, Martin L, 1978. "Optimal Rewards for Economic Regulation," American Economic Review, American Economic Association, vol. 68(4), pages 683-691, September.
  5. Hoel, Michael & Karp, Larry, 2001. "Taxes and quotas for a stock pollutant with multiplicative uncertainty," Journal of Public Economics, Elsevier, vol. 82(1), pages 91-114, October.
  6. Partha Dasgupta & Peter Hammond & Eric Maskin, 1980. "On Imperfect Information and Optimal Pollution Control," Review of Economic Studies, Oxford University Press, vol. 47(5), pages 857-860.
  7. Spulber, Daniel F., 1988. "Optimal environmental regulation under asymmetric information," Journal of Public Economics, Elsevier, vol. 35(2), pages 163-181, March.
  8. Robert A. Collinge & Wallace E. Oates, 1982. "Efficiency in Pollution Control in the Short and Long Runs: A System of Rental Emission Permits," Canadian Journal of Economics, Canadian Economics Association, vol. 15(2), pages 347-354, May.
  9. Louis Kaplow & Steven Shavell, 2002. "On the Superiority of Corrective Taxes to Quantity Regulation," American Law and Economics Review, Oxford University Press, vol. 4(1), pages 1-17, January.
  10. 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.
  11. Blair, Benjamin F., 1995. "Sharp regulatory performance with blunt instruments," Economics Letters, Elsevier, vol. 48(2), pages 201-206, May.
  12. Stavins, Robert N., 1996. "Correlated Uncertainty and Policy Instrument Choice," Journal of Environmental Economics and Management, Elsevier, vol. 30(2), pages 218-232, March.
  13. Yohe, Gary W., 1981. "Should sliding controls be the next generation of pollution controls?," Journal of Public Economics, Elsevier, vol. 15(2), pages 251-267, April.
  14. Ross McKitrick, 1999. "A Cournot Mechanism for Pollution Control under Asymmetric Information," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 14(3), pages 353-363, October.
  15. Roberts, Marc J. & Spence, Michael, 1976. "Effluent charges and licenses under uncertainty," Journal of Public Economics, Elsevier, vol. 5(3-4), pages 193-208.
  16. Newell, Richard G. & Pizer, William A., 2003. "Regulating stock externalities under uncertainty," Journal of Environmental Economics and Management, Elsevier, vol. 45(2, Supple), pages 416-432, March.
  17. Adar, Zvi & Griffin, James M., 1976. "Uncertainty and the choice of pollution control instruments," Journal of Environmental Economics and Management, Elsevier, vol. 3(3), pages 178-188, October.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:bpj:bejeap:v:10:y:2010:i:1:n:12. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peter Golla)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.