Learning Abatement Costs: On the Dynamics of Optimal Regulation of Experience Goods
We study the introduction of new technologies when their costs are subject to idiosyncratic uncertainty and can only be fully learned through individual experience. We set up a dynamic model of clean experience goods that replace old polluting consumption options and show how optimal regulation evolves over time. In our base setting where social and private learning incentives coincide, the optimal tax of the polluting consumption is increasing over time. However, if social and private learning incentives diverge, we show that it will be optimal to temporarily increase the tax rate beyond net marginal external damages to induce optimal learning, before reducing the tax rate to the steady-state level. Alternatively, one needs to complement the tax by subsidies for first-time users which will be phased out over time. Similar results apply if consumers have biased expectations. We therefore give a rationale for introductory subsidies of new, clean technologies and non-monotonic tax paths from a perspective of consumer learning.
|Date of creation:||2012|
|Contact details of provider:|| Postal: Poschingerstrasse 5, 81679 Munich|
Phone: +49 (89) 9224-0
Fax: +49 (89) 985369
Web page: http://www.cesifo-group.de
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.:
- Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, July.
- Tülin Erdem & Susumu Imai & Michael Keane, 2003.
"Brand and Quantity Choice Dynamics Under Price Uncertainty,"
Quantitative Marketing and Economics (QME),
Springer, vol. 1(1), pages 5-64, March.
- Erdem, Tulin & Imai, Susumu & Keane, Michael, 2003. "Brand and Quantity Choice Dynamics Under Price Uncertainty," MPRA Paper 52516, University Library of Munich, Germany.
- Carl Shapiro, 1983. "Optimal Pricing of Experience Goods," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 497-507, Autumn.
- Tülin Erdem & Michael P. Keane, 1996. "Decision-Making Under Uncertainty: Capturing Dynamic Brand Choice Processes in Turbulent Consumer Goods Markets," Marketing Science, INFORMS, vol. 15(1), pages 1-20.
- Milgrom, Paul & Roberts, John, 1986. "Price and Advertising Signals of Product Quality," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 796-821, August.
- Paul R. Milgrom & John Roberts, 1984. "Price and Advertising Signals of Product Quality," Cowles Foundation Discussion Papers 709, Cowles Foundation for Research in Economics, Yale University.
- Weitzman Martin L., 1994. "On the Environmental Discount Rate," Journal of Environmental Economics and Management, Elsevier, vol. 26(2), pages 200-209, March.
- Weitzman, M.L., 1993. "On the 'Environmental' Discount Rate," Harvard Institute of Economic Research Working Papers 1625, Harvard - Institute of Economic Research.
- Ronald Goettler & Karen Clay, 2006. "Price Discrimination with Experience Goods: a Structural Econometric Analysis," 2006 Meeting Papers 723, Society for Economic Dynamics.
- Joseph Farrell, 1986. "Moral Hazard as an Entry Barrier," RAND Journal of Economics, The RAND Corporation, vol. 17(3), pages 440-449, Autumn.
- Joseph Farrell, 1985. "Moral Hazard as an Entry Barrier," Working papers 387, Massachusetts Institute of Technology (MIT), Department of Economics.
- George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, Oxford University Press, vol. 84(3), pages 488-500.
- Dirk Bergemann & Juuso VÃ¤limÃ¤ki, 2006. "Dynamic Pricing of New Experience Goods," Journal of Political Economy, University of Chicago Press, vol. 114(4), pages 713-743, August. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_4058. 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: (Klaus Wohlrabe)
If references are entirely missing, you can add them using this form.