IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Emission Tax or Standard? The Role of Productivity Dispersion

  • Zhe Li
  • Shouyong Shi

When a society wants to control aggregate emission under a certain target level, is it more desirable to impose a tax or a regulatory standard on emission? To answer this question, we explore a model where plants are heterogeneous in productivity and monopolistically competitive in the production of a set of varieties of (dirty-) goods whose by-product is emission. The main result is that the standard yields higher welfare than the tax if and only if productivity dispersion is small and the monopoly power in the dirty-goods sector is strong. In the process of obtaining this result, we find that, if the plants have no access to an abatement technology, then the tax dominates the standard unambiguously. When the plants do have access to an abatement technology, there can be less price distortion under the standard than under the tax, in which case the standard can yield higher welfare. These results illustrate that productivity dispersion is important for evaluating market-based environmental policies relative to non-market based policies.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.economics.utoronto.ca/public/workingPapers/tecipa-409.pdf
File Function: Main Text
Download Restriction: no

Paper provided by University of Toronto, Department of Economics in its series Working Papers with number tecipa-409.

as
in new window

Length: 36 pages
Date of creation: 12 Sep 2010
Date of revision:
Handle: RePEc:tor:tecipa:tecipa-409
Contact details of provider: Postal: 150 St. George Street, Toronto, Ontario
Phone: (416) 978-5283

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.:

as in new window
  1. 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.
  2. Pizer, William A., 2002. "Combining price and quantity controls to mitigate global climate change," Journal of Public Economics, Elsevier, vol. 85(3), pages 409-434, September.
  3. Freeman, Jody & Kolstad, Charles D., 2006. "Moving to Markets in Environmental Regulation: Lessons from Twenty Years of Experience," OUP Catalogue, Oxford University Press, number 9780195189650, March.
  4. Kelly, David L., 2005. "Price and quantity regulation in general equilibrium," Journal of Economic Theory, Elsevier, vol. 125(1), pages 36-60, November.
  5. Cameron Hepburn, 2006. "Regulation by Prices, Quantities, or Both: A Review of Instrument Choice," Oxford Review of Economic Policy, Oxford University Press, vol. 22(2), pages 226-247, Summer.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:tor:tecipa:tecipa-409. 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: (RePEc Maintainer)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.