A Comparison of Emission Taxes and Permit Markets for Controlling Correlated Externalities

Arthur Caplan

Environmental & Resource Economics, 2006, vol. 34, issue 4, 492 pages

Abstract: This paper provides an answer to the question: Are emission taxes an efficient and self-enforcing mechanism to control correlated externality problems? By “correlated externalities” we mean multiple pollutants that are jointly produced by a single source but cause differentiated regional and global externalities. By “self-enforcing” we mean a mechanism that accounts for the endogeneity that exists between competing jurisdictions in the setting of environmental policy within a federation of regions. This mechanism incorporates sequential decision making among the jurisdictions and therefore determines an equilibrium based on the concept of subgame perfection. We find that, unlike joint domestic and international tradable permit markets, joint emission taxes and a hybrid scheme of permits and taxes are neither efficient nor self-enforcing. Copyright Springer 2006

Keywords: correlated externalities; hybrid scheme; joint emission taxes; joint permits; C72; D62; D78; H41; H77; Q28 (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (12)

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DOI: 10.1007/s10640-006-0010-3

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