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Second Best Environmental Policies under Uncertainty


  • Fabio Antoniou

    () (Department of International and European Economic Studies, Athens University of Economics and Business, 76 Patision Street, Athens 104 34, Greece)

  • Panos Hatzipanayotou

    () (Department of International and European Economic Studies, Athens University of Economics and Business, 76 Patision Street, Athens 104 34, Greece, and Center of for Economic Studies and the Ifo Institute of Economic Research, Munich (CESifo))

  • Phoebe Koundouri

    () (Department of International and European Economic Studies, Athens University of Economics and Business, 76 Patision Street, Athens 104 34, Greece)


Governments use environmental policies, such as an emissions standard or a tax, to control pollution and for rent shifting purposes. Contrary to firms, however, governments are unable to perfectly foresee the actual level of demand and the cost of abatement. Our results suggest that not only the presence but also the absolute level of uncertainty matters for the optimal choice of the environmental policy instrument. Moreover, the optimality conditions under strategic behavior may lead to welfare losses relative to the cooperative outcomes because of under-regulation and lack of policy coordination between the two countries.

Suggested Citation

  • Fabio Antoniou & Panos Hatzipanayotou & Phoebe Koundouri, 2012. "Second Best Environmental Policies under Uncertainty," Southern Economic Journal, Southern Economic Association, vol. 78(3), pages 1019-1040, January.
  • Handle: RePEc:sej:ancoec:v:78:3:y:2012:p:10191-1040
    DOI: 10.4284/0038-4038-78.3.1019

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    Cited by:

    1. Shreekar Pradhan & J. Scott Holladay & Mohammed Mohsin & Shreekar Pradhan, 2015. "Environmental Policy Instruments and Uncertainties Under Free Trade and Capital Mobility," EcoMod2015 8102, EcoMod.
    2. Evangelos V. Dioikitopoulos & Sugata Ghosh & Eugenia Vella, 2016. "Technological Progress, Time Perception and Environmental Sustainability," Working Papers 2016002, The University of Sheffield, Department of Economics.
    3. Akira Miyaoka, 2019. "The Signaling Effect of Emission Taxes Under International Duopoly," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 72(3), pages 691-720, March.
    4. Ioanna Pantelaiou & Panos Hatzipanayotou & Panagiotis Konstantinou & Anastasios Xepapadeas, 2018. "Can Cleaner Environment Promote International Trade? Environmental Policies as Export Promoting Mechanisms," DEOS Working Papers 1810, Athens University of Economics and Business.

    More about this item

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F18 - International Economics - - Trade - - - Trade and Environment
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy


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