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Bankability and Information in Pollution Policy

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  • Garth Heutel

Abstract

I assess the role of bankability and information in environmental policy design. I develop a model demonstrating that banking and borrowing can be allowed for a price policy as well as a quantity policy. I compare expected welfare between price and quantity policies, with and without banking, under several different scenarios regarding uncertainty and information. A bankable policy can provide an efficiency improvement by allowing for smoothing of costs, though it is not necessarily more efficient than a policy that does not allow banking. The ranking of prices versus quantities and of bankability versus nonbankability depends on both the slopes of marginal costs and benefits and on the specification of uncertainty and information.

Suggested Citation

  • Garth Heutel, 2020. "Bankability and Information in Pollution Policy," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 7(4), pages 779-799.
    • Handle: RePEc:ucp:jaerec:doi:10.1086/708908
    DOI: 10.1086/708908
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    Cited by:

    1. Burtraw, Dallas & Holt, Charles & Palmer, Karen & Shobe, William M., 2020. "Quantities with Prices: Price-Responsive Allowance Supply in Environmental Markets," RFF Working Paper Series 20-17, Resources for the Future.
    2. Ino, Hiroaki & Matsumura, Toshihiro, 2021. "Optimality of emission pricing policies based on emission intensity targets under imperfect competition," Energy Economics, Elsevier, vol. 98(C).

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