Taxes Versus Quantities for a Stock Pollutant with Endogenous Abatement Costs and Asymmetric Information

Larry Karp and Jiangfeng Zhang ()
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Jiangfeng Zhang: Asian Development Bank

A chapter in The Economics of the Global Environment, 2016, pp 493-533 from Springer

Abstract: Abstract We compare emissions taxes and quotas when a (strategic) regulator and (non-strategic) firms have asymmetric information about abatement costs, and all agents use Markov Perfect decision rules. Firms make investment decisions that affect their future abatement costs. For general functional forms, firms’ investment policy is information-constrained efficient when the regulator uses a quota, but not when the regulator uses an emissions tax. This advantage of quotas over emissions taxes has not previously been recognized. For a special functional form (linear-quadratic) both policies are constrained efficient. Using numerical methods, we find that a tax has some advantages in this case.

Keywords: Pollution control; Investment; Asymmetric information; Rational expectations; Choice of instruments (search for similar items in EconPapers)
JEL-codes: C61 C72 D8 H21 H4 Q28 Q54 (search for similar items in EconPapers)
Date: 2016
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Related works:
Journal Article: Taxes versus quantities for a stock pollutant with endogenous abatement costs and asymmetric information (2012)
Working Paper: Taxes Versus Quantities for a Stock Pollutant with Endogenous Abatement Costs and Asymmetric Information (2008)
Working Paper: Taxes Versus Quantities for a Stock Pollutant with Endogenous Abatement Costs and Asymmetric Information (2008)
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DOI: 10.1007/978-3-319-31943-8_22

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