IDEAS home Printed from https://ideas.repec.org/p/ulp/sbbeta/2010-07.html
   My bibliography  Save this paper

Adverse Selection, Emission Permits and Optimal Price Differentiation

Author

Listed:
  • Mourad Afif
  • Sandrine Spaeter

Abstract

In this paper, we focus on the adverse selection issue that prevails in an economy when the regulator is not able to observe the type of the abate- ment costs of the firms. The regulator decides the total level of emission that minimizes the total social cost and he sells them to the firms at some di¤erentiated prices. When firms can hide their type relative to their true abatement costs, prices must not only minimize the social cost of the envir- onmental policy. They must also induce the firms to reveal their true type. A striking point of our model is that there is no participation constraint for firms are compelled to be actors of the environmental policy. Another original result concerns the rent, which still benefits to low-cost types, but which appears to be a fee paid by high-cost types.

Suggested Citation

  • Mourad Afif & Sandrine Spaeter, 2010. "Adverse Selection, Emission Permits and Optimal Price Differentiation," Working Papers of BETA 2010-07, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    • Handle: RePEc:ulp:sbbeta:2010-07
    as

    Download full text from publisher

    File URL: http://beta.u-strasbg.fr/WP/2010/2010-07.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Michel Mougeot & Sonia Schwartz, 2008. "Allocation optimale de quotas de pollution et information asymétrique," Revue économique, Presses de Sciences-Po, vol. 59(3), pages 505-515.
    2. Loeb, Martin & Magat, Wesley A, 1979. "A Decentralized Method for Utility Regulation," Journal of Law and Economics, University of Chicago Press, vol. 22(2), pages 399-404, October.
    3. Shah, Sudhir A., 2005. "Optimal management of durable pollution," Journal of Economic Dynamics and Control, Elsevier, vol. 29(6), pages 1121-1164, June.
    4. Roberts, Marc J. & Spence, Michael, 1976. "Effluent charges and licenses under uncertainty," Journal of Public Economics, Elsevier, vol. 5(3-4), pages 193-208.
    5. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 84(3), pages 488-500.
    6. Jean-Jacques Laffont & Jean Tirole, 1990. "Adverse Selection and Renegotiation in Procurement," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 57(4), pages 597-625.
    7. Martin L. Weitzman, 1974. "Prices vs. Quantities," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 41(4), pages 477-491.
    8. Bulckaen, Fabrizio, 1997. "Emissions Charge and Asymmetric Information: Consistently a Problem?," Journal of Environmental Economics and Management, Elsevier, vol. 34(1), pages 100-106, September.
    9. Baumol,William J. & Oates,Wallace E., 1988. "The Theory of Environmental Policy," Cambridge Books, Cambridge University Press, number 9780521322249, November.
    10. Stewart, Jay, 1994. "The Welfare Implications of Moral Hazard and Adverse Selection in Competitive Insurance Markets," Economic Inquiry, Western Economic Association International, vol. 32(2), pages 193-208, April.
    11. Cropper, Maureen L & Oates, Wallace E, 1992. "Environmental Economics: A Survey," Journal of Economic Literature, American Economic Association, vol. 30(2), pages 675-740, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Meixing Dai, 2012. "External Constraint and Financial Crises with Balance Sheet Effects," International Economic Journal, Taylor & Francis Journals, vol. 26(4), pages 567-585, March.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Requate, Till, 2005. "Environmental Policy under Imperfect Competition: A Survey," Economics Working Papers 2005-12, Christian-Albrechts-University of Kiel, Department of Economics.
    2. Sam Fankhauser & Cameron Hepburn, 2009. "Carbon markets in space and time," GRI Working Papers 3, Grantham Research Institute on Climate Change and the Environment.
    3. Boyer, M. & Laffont, J.J., 1996. "Toward a Political Theory of Environmental Policy," Cahiers de recherche 9604, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
    4. Sovacool, Benjamin K., 2015. "The political economy of pollution markets: Historical lessons for modern energy and climate planners," Renewable and Sustainable Energy Reviews, Elsevier, vol. 49(C), pages 943-953.
    5. Zike Cao & Kai-Lung Hui & Hong Xu, 2018. "An Economic Analysis of Peer Disclosure in Online Social Communities," Information Systems Research, INFORMS, vol. 29(3), pages 546-566, September.
    6. Lehmann, Paul, 2008. "Using a policy mix for pollution control: A review of economic literature," UFZ Discussion Papers 4/2008, Helmholtz Centre for Environmental Research (UFZ), Division of Social Sciences (ÖKUS).
    7. Akira Maeda, 2012. "Setting trigger price in emissions permit markets equipped with a safety valve mechanism," Journal of Regulatory Economics, Springer, vol. 41(3), pages 358-379, June.
    8. Louis Kaplow & Steven Shavell, 2002. "On the Superiority of Corrective Taxes to Quantity Regulation," American Law and Economics Review, American Law and Economics Association, vol. 4(1), pages 1-17, January.
    9. Grüll, Georg & Taschini, Luca, 2011. "Cap-and-trade properties under different hybrid scheme designs," Journal of Environmental Economics and Management, Elsevier, vol. 61(1), pages 107-118, January.
    10. Stavins, Robert, 2001. "Lessons From the American Experiment With Market-Based Environmental Policies," RFF Working Paper Series dp-01-53, Resources for the Future.
    11. Pench, Alberto, 2016. "A Note on Pollution Regulation With Asymmetric Information," ET: Economic Theory 232718, Fondazione Eni Enrico Mattei (FEEM).
    12. Stavins, Robert, 2004. "Environmental Economics," RFF Working Paper Series dp-04-54, Resources for the Future.
    13. Weber, Thomas A. & Neuhoff, Karsten, 2010. "Carbon markets and technological innovation," Journal of Environmental Economics and Management, Elsevier, vol. 60(2), pages 115-132, September.
    14. Pezzey, John C.V. & Jotzo, Frank, 2010. "Tax-Versus-Trading and Free Emission Shares as Issues for Climate Policy Design," Research Reports 95049, Australian National University, Environmental Economics Research Hub.
    15. Patrick Criqui, 2009. "Au coeur du futur régime climatique international : taxes ou quotas CO2 ?," Post-Print halshs-00436709, HAL.
    16. Daigee Shaw & Ming-Feng Hung, 2001. "Evolution and evaluation of air pollution control policy in Taiwan," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 4(3), pages 141-166, September.
    17. Rousse, Olivier, 2008. "Environmental and economic benefits resulting from citizens' participation in CO2 emissions trading: An efficient alternative solution to the voluntary compensation of CO2 emissions," Energy Policy, Elsevier, vol. 36(1), pages 388-397, January.
    18. Burtraw, Dallas & Palmer, Karen & Kahn, Danny, 2010. "A symmetric safety valve," Energy Policy, Elsevier, vol. 38(9), pages 4921-4932, September.
    19. Carlos Chávez & John Stranlund, 2009. "A Note on Emissions Taxes and Incomplete Information," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 44(1), pages 137-144, September.
    20. Segerson, Kathleen, 1994. "Environmental Policy And Risk," 1994 Quantifying Long Run Agricultural Risks and Evaluating Farmer Responses Risk, Technical Committee Meeting, March 24-26, 1994, Gulf Shores State Park, Alabama 271555, Regional Research Projects > S-232: Quantifying Long Run Agricultural Risks and Evaluating Farmer Responses to Risk.

    More about this item

    Keywords

    Regulation; adverse selection; emission permits; abatement costs; price differentiation.;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ulp:sbbeta:2010-07. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge The email address of this maintainer does not seem to be valid anymore. Please ask the person in charge to update the entry or send us the correct address (email available below). General contact details of provider: https://edirc.repec.org/data/bestrfr.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.