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The Role of Information Provision as a Policy Instrument to Supplement Environmental Taxes: Empowering Consumers to Choose Optimally

  • Eftichios S. Sartzetakis

    (University of Macedonia)

  • Anastasios Xepapadeas

    (Athens University of Economics and Business and Beijer Fellow)

  • Emmanuel Petrakis

    (University of Crete)

The present paper examines, within a dynamic framework, the use of information provision as a policy instrument to supplement environmental taxation. We assume that at least a fraction of consumers do not posses the required information to make the optimal choices, and that their behavior at each time period depends on the accumulated stock of information. We show that, as the accumulated stock of information provision increases, both the optimal level of information provided at each period of time and the optimal tax rate decline over time. Our results provide strong evidence in support of information campaigns as a policy instrument to supplement traditional environmental policies. Information provision can shift the demand towards environmentally friendly products over time and thus, reduce the required level of the tax rate.

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Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2009.46.

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Date of creation: Jun 2009
Date of revision:
Handle: RePEc:fem:femwpa:2009.46
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  1. Emmanuel Petrakis & Eftichios S. Sartzetakis & Anastasios Xepapadeas, 2004. "Environmental Information Provision as a Public Policy Instrument," Working Papers 0414, University of Crete, Department of Economics.
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  12. Kihlstrom, Richard E & Riordan, Michael H, 1984. "Advertising as a Signal," Journal of Political Economy, University of Chicago Press, vol. 92(3), pages 427-50, June.
  13. Dixit, Avinash K., 1978. "A Model of Duopoly Suggesting a Theory of Entry Barriers," The Warwick Economics Research Paper Series (TWERPS) 125, University of Warwick, Department of Economics.
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  17. Fred M. Feinberg, 2001. "On Continuous-Time Optimal Advertising Under S-Shaped Response," Management Science, INFORMS, vol. 47(11), pages 1476-1487, November.
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