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

Christophe Deissenberg, Herbert Dawid and Pavel Ševčík

No 2004.137, Working Papers from Fondazione Eni Enrico Mattei

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: Environmental policy; Emissions taxes; Time inconsistency; Heterogeneous agents; Bounded rationality; Learning; Multiple equilibria; Stackelberg games (search for similar items in EconPapers)
JEL-codes: C69 C79 D62 H23 H3 Q5 (search for similar items in EconPapers)
Date: 2004-11
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://feem-media.s3.eu-central-1.amazonaws.com/w ... oads/NDL2004-137.pdf (application/pdf)

Related works:
Chapter: Cheap Talk, Gullibility, and Welfare in an Environmental Taxation Game (2005)
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:fem:femwpa:2004.137

Access Statistics for this paper

More papers in Working Papers from Fondazione Eni Enrico Mattei Contact information at EDIRC.
Bibliographic data for series maintained by Alberto Prina Cerai ().