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Quotas May Beat Taxes in a Global Emission Game

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  • Alfred Endres

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  • Michael Finus

Abstract

Economists have persistently argued that market-based instruments are better suited than command and control instruments (CAC) to achieve pollution abatement targets cost-effectively. However, this advice has not yet fallen on fertile soil. CAC is the predominant instrument in practical environmental policy. The paper attempts to give an explanation for this observation by analyzing two countries negotiating emission reductions in a world with “typical” institutional restrictions. Negotiations are assumed to be either on a uniform emission reduction quota or a uniform emission tax. Counterintuitively, it turns out that in such a second-best world an agreement under a cost-inefficient quota regime may be superior to an efficient tax agreement with respect to ecological and welfare criteria. Moreover, in contrast to a quota agreement, a tax agreement may not be feasible and stable if countries exhibit asymmetric cost-benefit structures. Copyright Kluwer Academic Publishers 2002

Suggested Citation

  • Alfred Endres & Michael Finus, 2002. "Quotas May Beat Taxes in a Global Emission Game," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 9(6), pages 687-707, November.
  • Handle: RePEc:kap:itaxpf:v:9:y:2002:i:6:p:687-707
    DOI: 10.1023/A:1020911130175
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    References listed on IDEAS

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    Cited by:

    1. repec:eee:appene:v:211:y:2018:i:c:p:1021-1029 is not listed on IDEAS
    2. Juan-Carlos Altamirano-Cabrera & Michael Finus & Rob Dellink, 2008. "Do Abatement Quotas Lead To More Successful Climate Coalitions?," Manchester School, University of Manchester, vol. 76(1), pages 104-129, January.
    3. Stefan Borsky & Andrea Leiter & Michael Pfaffermayr, 2011. "Does going green pay off? The effect of an international environmental agreement on tropical timber trade," Working Papers 2011-17, Faculty of Economics and Statistics, University of Innsbruck.
    4. Naber, S.K. & de Ree, D.A. & Spliet, R. & van den Heuvel, W., 2015. "Allocating CO2 emission to customers on a distribution route," Omega, Elsevier, vol. 54(C), pages 191-199.
    5. Leif Helland & Jon Hovi, 2008. "Renegotiation Proofness and Climate Agreements: Some Experimental Evidence," Nordic Journal of Political Economy, Nordic Journal of Political Economy, vol. 34, pages 1-2.
    6. Winkler, Ralph, 2009. "Now or Never: Environmental Protection under Hyperbolic Discounting," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 3, pages 1-22.
    7. Ulrich van Suntum & Jens Oelgemöller & Cordelius Ilgmann & Tobias Böhm, "undated". "Walter Eucken`s Principles of Economic Policy Today," Working Papers 201175, Institute of Spatial and Housing Economics, Munster Universitary.
    8. Frank Jotzo & John C. V. Pezzey, 2005. "Optimal intensity targets for emissions trading under uncertainty (now replaced by EEN0605)," Economics and Environment Network Working Papers 0504, Australian National University, Economics and Environment Network.
    9. Michael Finus, 2004. "Modesty Pays: Sometimes!," Working Papers 2004.68, Fondazione Eni Enrico Mattei.
    10. Michael Finus & Juan-Carlos Altamirano-Cabrera & Ekko Ierland, 2005. "The effect of membership rules and voting schemes on the success of international climate agreements," Public Choice, Springer, vol. 125(1), pages 95-127, July.
    11. Michael Finus & Ekko Ierland & Rob Dellink, 2006. "Stability of Climate Coalitions in a Cartel Formation Game," Economics of Governance, Springer, vol. 7(3), pages 271-291, August.
    12. Guangliang Ye & Jinhua Zhao, 2016. "Environmental Regulation in a Mixed Economy," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 65(1), pages 273-295, September.
    13. Dritan Osmani & Richard Tol, 2010. "The Case of two Self-Enforcing International Agreements for Environmental Protection with Asymmetric Countries," Computational Economics, Springer;Society for Computational Economics, vol. 36(2), pages 93-119, August.
    14. van Suntum, Ulrich & Böhm, Tobias & Oelgemöller, Jens & Ilgmann, Cordelius, 2011. "Walter Eucken`s principles of economic policy today," CAWM Discussion Papers 49, University of Münster, Center of Applied Economic Research Münster (CAWM).
    15. Michael Finus & Bianca Rundshagen, 2015. "Game Theory and Environmental and Resource Economics–In Honour of Alfred Endres," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 62(4), pages 657-664, December.
    16. Alfred Endres & Bianca Rundshagen, 2013. "Incentives to Diffuse Advanced Abatement Technology Under the Formation of International Environmental Agreements," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 56(2), pages 177-210, October.
    17. Cameron Hepburn, 2006. "Regulation by Prices, Quantities, or Both: A Review of Instrument Choice," Oxford Review of Economic Policy, Oxford University Press, vol. 22(2), pages 226-247, Summer.

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