A Note on Emissions Taxes and Incomplete Information

Carlos Chavez () and John Kevin Stranlund
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Carlos Chavez: Departamento de Economia, Universidad de Concepcion, Concepcion, Chile

No 2008-5, Working Papers from University of Massachusetts Amherst, Department of Resource Economics

Abstract: In contrast with what we perceive is the conventional wisdom about setting emissions taxes under uncertainty, we demonstrate that setting a uniform tax equal to expected marginal damage is not generally efficient under incomplete information about firms’ abatement costs and damages from pollution. We show that efficient taxes will deviate from expected marginal damage if there is uncertainty about the slopes of the marginal abatement costs of regulated firms. Moreover, efficient emissions tax rates will vary across firms if a regulator can use observable firm-level characteristics to gain some information about how the firms’ marginal abatement costs vary.

Keywords: Emissions Taxes; Incomplete Information; Uncertainty (search for similar items in EconPapers)
JEL-codes: L51 Q28 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cta, nep-ene, nep-env and nep-mic
Date: 2008-07
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Related works:
Journal Article: A Note on Emissions Taxes and Incomplete Information (2009)
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