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Voluntary opt-in provision and instrument choice in environmental regulation

Author

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  • Nikula Harri

    (Faculty of Management and Business, Tampere University)

Abstract

We study market-based instruments under incomplete participation. Incomplete participation means that the regulation does not cover all emitters that contribute to harmful damages. Our results show that a voluntary opt-in provision should always be incorporated into regulation under incomplete participation as the provision unambiguously increases expected social welfare. Incomplete participation also affects the choice between market-based instruments, tradable permits and environmental taxes, under uncertainty. The impact will depend on whether the voluntary provision is used or not. The voluntary participation does not unambiguously favor one of the instruments, but the advantage is case-specific.

Suggested Citation

  • Nikula Harri, 2020. "Voluntary opt-in provision and instrument choice in environmental regulation," Working Papers 2027, Tampere University, Faculty of Management and Business, Economics.
    • Handle: RePEc:tam:wpaper:2027
    as

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    File URL: http://urn.fi/URN:ISBN:978-952-03-1593-1
    File Function: First version, 2020
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Emission taxation; tradable emission permits; uncertainty; voluntary opt-in;
    All these keywords.

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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