Choice and design of regulatory instruments in the presence of green consumers

Sangeeta Bansal

Resource and Energy Economics, 2008, vol. 30, issue 3, 345-368

Abstract: Using a vertically differentiated product model, this paper examines welfare implications of various government policies in a situation where consumers are environmentally discerning. It studies ad valorem taxes/subsidies and emission taxes. The optimal policy depends on the magnitude of damage parameter associated with environmental externality. For a given distribution of tastes and preferences, as the damage parameter increases from a low to a high value, the optimal policy shifts from an ad valorem tax to an ad valorem subsidy. It also shows that for a sufficiently low damage parameter, an ad valorem tax dominates an emission tax.

Date: 2008
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