Smart Cap

Larry Karp, Christian P. Traeger and Christian Träger ()

No 8917, CESifo Working Paper Series from CESifo

Abstract: We introduce a “smart” cap and trade system that eliminates the welfare costs of asymmetric information (“uncertainty”). This cap responds endogenously to technology or macroeconomic shocks, relying on the market price of certificates to aggregate information. It allows policy makers to modify existing institutions to achieve more efficient emission reductions. The paper also shows that the efficient carbon price is more sensitive to technological innovations than usually assumed. The lasting impact and slow diffusion of these innovations typically make the optimal carbon price a much steeper function of emissions than suggested by the social cost of carbon.

Keywords: pollution; climate change; taxes; quantities; regulation; smart cap; uncertainty; technology diffusion; dynamic programming; integrated assessment; DICE (search for similar items in EconPapers)
JEL-codes: D80 H20 Q00 Q50 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-ene and nep-env
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Working Paper: Smart Cap (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_8917

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