Bankability and Information in Pollution Policy

Garth Heutel

Journal of the Association of Environmental and Resource Economists, 2020, vol. 7, issue 4, 779 - 799

Abstract: I assess the role of bankability and information in environmental policy design. I develop a model demonstrating that banking and borrowing can be allowed for a price policy as well as a quantity policy. I compare expected welfare between price and quantity policies, with and without banking, under several different scenarios regarding uncertainty and information. A bankable policy can provide an efficiency improvement by allowing for smoothing of costs, though it is not necessarily more efficient than a policy that does not allow banking. The ranking of prices versus quantities and of bankability versus nonbankability depends on both the slopes of marginal costs and benefits and on the specification of uncertainty and information.

Date: 2020
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