Optimal Climate Change Policies When Governments Cannot Commit
This paper examines the optimal design of climate change policies in the context where governments want to encourage the private sector to undertake significant immediate investment in developing cleaner technologies, but the carbon taxes and other environmental policies that could in principle stimulate such investment will be imposed over a very long future. The conventional claim by environmental economists is that environmental policies alone are sufficient to induce firms to undertake optimal investment. However this argument requires governments to be able to commit to these future taxes, and it is far from clear that governments have this degree of commitment. We assume instead that governments cannot commit, and so both they and the private sector have to contemplate the possibility of there being governments in power in the future that give different (relative) weights to the environment. We show that this lack of commitment has a significant asymmetric effect. Compared to the situation where governments can commit it increases the incentive of the current government to have the investment undertaken, but reduces the incentive of the private sector to invest. Consequently governments may need to use additional policy instruments – such as R&D subsidies – to stimulate the required investmen
|Date of creation:||15 Aug 2009|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: 01334 462420
Fax: 01334 462444
Web page: http://www.st-andrews.ac.uk/economics/
More information through EDIRC
|Order Information:|| Email: |
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.:
- Ulph, Alistair & Ulph, David, 1997. "Global Warming, Irreversibility and Learning," Economic Journal, Royal Economic Society, vol. 107(442), pages 636-50, May.
- Adam B. Jaffe & Richard G. Newell & Robert N. Stavins, 2000.
"Technological Change and the Environment,"
NBER Working Papers
7970, National Bureau of Economic Research, Inc.
- Stavins, Robert & Jaffe, Adam & Newell, Richard, 2000. "Technological Change and the Environment," Working Paper Series rwp00-002, Harvard University, John F. Kennedy School of Government.
- Stavins, Robert & Jaffe, Adam & Newell, Richard, 2000. "Technological Change and the Environment," Discussion Papers dp-00-47, Resources For the Future.
When requesting a correction, please mention this item's handle: RePEc:san:wpecon:0909. 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: (Bram Boskamp)
If references are entirely missing, you can add them using this form.