Environmental Policy à la Carte: Letting Firms Choose their Regulation
Environmental policy often has to be devised under informational constraints, like uncertainty and asymmetric information. We consider an environmental policy that aims at reducing the welfare losses caused by asymmetric information while being sufficiently simple for implementation. In this policy, firms can choose between being regulated with an emission tax or a permit market. This serves as a screening device; the firms reveal private information by choosing an instrument. We show that such a menu of policy options improves upon conventional environmental policy. Furthermore, the optimal policy is simple and thus easily implementable. The approach is also theoretically interesting, because the simultaneous use of price- and quantity-based instruments induces an asymmetry into the pricesversus- quantities decision compared to Weitzman’s criterion. Especially, there can be an optimal pooling equilibrium where all firms choose the tax, but it is never optimal that all firms participate in permit trading.
|Date of creation:||2008|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://wwz.unibas.ch
More information through EDIRC
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.:
- Moledina, Amyaz A. & Coggins, Jay S. & Polasky, Stephen & Costello, Christopher, 2003. "Dynamic environmental policy with strategic firms: prices versus quantities," Journal of Environmental Economics and Management, Elsevier, vol. 45(2, Supple), pages 356-376, March.
- Frank Krysiak, 2008. "Ex-post efficient permit markets: a detailed analysis," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 39(4), pages 397-410, April.
- Krysiak, Frank C., 2008. "Prices vs. quantities: The effects on technology choice," Journal of Public Economics, Elsevier, vol. 92(5-6), pages 1275-1287, June.
- M. L. Weitzman, 1973.
"Prices vs. Quantities,"
106, Massachusetts Institute of Technology (MIT), Department of Economics.
- Segerson, Kathleen, 1988. "Uncertainty and incentives for nonpoint pollution control," Journal of Environmental Economics and Management, Elsevier, vol. 15(1), pages 87-98, March.
- Pizer, William & Newell, Richard, 1998.
"Regulating Stock Externalities Under Uncertainty,"
dp-99-10-rev, Resources For the Future.
- John G. Riley, 2001. "Silver Signals: Twenty-Five Years of Screening and Signaling," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 432-478, June.
- Kwerel, Evan, 1977. "To Tell the Truth: Imperfect Information and Optimal Pollution Control," Review of Economic Studies, Wiley Blackwell, vol. 44(3), pages 595-601, October.
- Unold, Wolfram & Requate, Till, 2001. "Pollution control by options trading," Economics Letters, Elsevier, vol. 73(3), pages 353-358, December.
- Stiglitz, Joseph E, 1977. "Monopoly, Non-linear Pricing and Imperfect Information: The Insurance Market," Review of Economic Studies, Wiley Blackwell, vol. 44(3), pages 407-30, October.
- Collinge, Robert A. & Bailey, Martin J., 1983. "Optimal quasi-market choice in the presence of pollution externalities," Journal of Environmental Economics and Management, Elsevier, vol. 10(3), pages 221-232, September.
- Roberts, Marc J. & Spence, Michael, 1976. "Effluent charges and licenses under uncertainty," Journal of Public Economics, Elsevier, vol. 5(3-4), pages 193-208.
- Stephen Smith & Joseph Swierzbinski, 2007. "Assessing the performance of the UK Emissions Trading Scheme," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 37(1), pages 131-158, May.
- Rothschild, Michael & Stiglitz, Joseph E, 1976. "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," The Quarterly Journal of Economics, MIT Press, vol. 90(4), pages 630-49, November.
- 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 347-54, May.
- Stiglitz, Joseph E, 1975.
"The Theory of "Screening," Education, and the Distribution of Income,"
American Economic Review,
American Economic Association, vol. 65(3), pages 283-300, June.
- Joseph E. Stiglitz, 1973. "The Theory of 'Screening', Education, and the Distribution of Income," Cowles Foundation Discussion Papers 354, Cowles Foundation for Research in Economics, Yale University.
- 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.
- Livernois, J. & Karp, L., 1992. "Using Automatic Tax Changes to Control Pollution Emissions," Working Papers 1992-12, University of Guelph, Department of Economics and Finance.
- Roberton Williams, 2002. "Prices vs. Quantities vs. Tradable Quantities," NBER Working Papers 9283, National Bureau of Economic Research, Inc.
- Richard Newell & William Pizer & Jiangfeng Zhang, 2005.
"Managing Permit Markets to Stabilize Prices,"
Environmental & Resource Economics,
European Association of Environmental and Resource Economists, vol. 31(2), pages 133-157, 06.
- Mandell, Svante, 2008. "Optimal mix of emissions taxes and cap-and-trade," Journal of Environmental Economics and Management, Elsevier, vol. 56(2), pages 131-140, September.
- Dasgupta, Partha & Hammond, Peter & Maskin, Eric, 1980. "On Imperfect Information and Optimal Pollution Control," Review of Economic Studies, Wiley Blackwell, vol. 47(5), pages 857-60, October.
- Montero, Juan-Pablo, 2000. "Optimal design of a phase-in emissions trading program," Journal of Public Economics, Elsevier, vol. 75(2), pages 273-291, February.
When requesting a correction, please mention this item's handle: RePEc:bsl:wpaper:2008/03. 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: (WWZ)
If references are entirely missing, you can add them using this form.