Prices vs. quantities in a dynamic problem: Externalities from resource extraction

R. J. Briggs ()

Resource and Energy Economics, 2011, vol. 33, issue 4, 843-854

Abstract: This paper shows how a stationary tax policy can optimally address a flow externality associated with resource extraction when the policymaker faces asymmetric information. In the model I consider, the policymaker must set policy in each period before the realization of a price shock. Resource owners then learn the value of the shock, and the owners choose extraction quantities. The optimal policy is a stationary tax rule that responds to a positive shock to the current price by reducing next period's tax rate. Intuitively, a reduction in next period's tax rate makes extraction next period less expensive and thus dampens the resource owner's current response to a price increase. This policy is robust to some, but not necessarily all, boundary solutions.

Keywords: Environmental policy; Resource policy; Choice of instruments; Asymmetric information; Non-renewable resources; Prices vs. quantities; Taxes; Permits; Uncertainty (search for similar items in EconPapers)
JEL-codes: D92 H23 L50 Q38 Q58 (search for similar items in EconPapers)
Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:eee:resene:v:33:y:2011:i:4:p:843-854

DOI: 10.1016/j.reseneeco.2011.06.001

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