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Experimental evidence on dynamic pollution tax policies

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  • Vossler, Christian A.
  • Suter, Jordan F.
  • Poe, Gregory L.

Abstract

This paper uses laboratory experiments to provide primary empirical evidence on dynamic pollution tax policies. In particular, we investigate a setting where a regulator with incomplete information uses a pollution tax mechanism with a simple, endogenous tax rate adjustment rule to cost-effectively meet a pollution standard. This mechanism provides the opportunity for firms to strategically abate in order to reduce future tax rates. The experiments vary important policy design features such as the type of tax (ambient or emissions), the initial tax rate, and the tax rate adjustment speed. We find that in equilibrium the pollution standard is met on average for each of these settings. The observed long-run tax rates vary considerably across policy designs, which can be explained with a theory that allows for a mix of strategic and myopic firms, along with the recognition that the incentives generated by the policy design can influence whether an agent plays myopically or strategically.

Suggested Citation

  • Vossler, Christian A. & Suter, Jordan F. & Poe, Gregory L., 2013. "Experimental evidence on dynamic pollution tax policies," Journal of Economic Behavior & Organization, Elsevier, vol. 93(C), pages 101-115.
  • Handle: RePEc:eee:jeborg:v:93:y:2013:i:c:p:101-115
    DOI: 10.1016/j.jebo.2013.07.017
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Frans P. Vries & Nick Hanley, 2016. "Incentive-Based Policy Design for Pollution Control and Biodiversity Conservation: A Review," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 63(4), pages 687-702, April.
    2. Hamet SARR & Mohamed Ali BCHIR & François COCHARD & Anne ROZAN, 2016. "Nonpoint source pollution: An experimental investigation of the Average Pigouvian Tax," Working Papers 2016-05, CRESE.
    3. François Cochard & Julie Le Gallo & Laurent Franckx, 2015. "Regulation Of Pollution In The Laboratory: Random Inspections, Ambient Inspections, And Commitment Problems," Bulletin of Economic Research, Wiley Blackwell, vol. 67(S1), pages 40-73, December.
    4. Hamet Sarr & Mohamed Bchir & Francois Cochard & Anne Rozan, 2016. "Nonpoint source pollution: An experimental investigation of the Average Pigouvian Tax," Working Papers hal-01375078, HAL.

    More about this item

    Keywords

    Dynamic tax; Emissions tax; Ambient tax; Laboratory experiments; Optimal control;

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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