Cheap Talk, Gullibility, and Welfare in an Environmental Taxation Game

Herbert Dawid, Christophe Deissenberg and Pavel Ševčík

Chapter Chapter 9 in Dynamic Games: Theory and Applications, 2005, pp 175-192 from Springer

Abstract: Abstract We consider a simple dynamic model of environmental taxation that exhibits time inconsistency. There are two categories of firms, Believers, who take the tax announcements made by the Regulator to face value, and Non-Believers, who perfectly anticipate the Regulator's decisions, albeit at a cost. The proportion of Believers and Non-Believers changes over time depending on the relative profits of both groups. We show that the Regulator can use misleading tax announcements to steer the economy to an equilibrium that is Pareto superior to the solutions usually suggested in the literature. Depending upon the initial proportion of Believers, the Regulator may prefer a fast or a low speed of reaction of the firms to differences in Believers/Non-Believers profits.

Keywords: Monetary Policy; Dynamic Game; Stable Steady State; Environmental Taxation; Cheap Talk (search for similar items in EconPapers)
Date: 2005
References: Add references at CitEc
Citations: View citations in EconPapers (2)

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Working Paper: Cheap Talk, Gullibility, and Welfare in an Environmental Taxation Game (2004)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-0-387-24602-4_9

Ordering information: This item can be ordered from
http://www.springer.com/9780387246024

DOI: 10.1007/0-387-24602-9_9

Access Statistics for this chapter

More chapters in Springer Books from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().