Pigou Regulation under Delayed Uncertainty Resolution

Christoph Heinzel () and Arnaud Reynaud
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Christoph Heinzel: SMART - Structures et Marché Agricoles, Ressources et Territoires - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - Institut Agro Rennes Angers - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement
Arnaud Reynaud: TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement

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Abstract: We analyze the regulation of an externality with risky social cost whose level becomes known only after a delay. For three models - one-period consumption, one-period production, and two-period consumption-saving -, we show that the full-information equilibrium, that accounts for the realized social cost, is always associated with a positive social value of information as compared to purely ex-ante Pigou regulation. We discuss ways to capture part of this social value by designing policies with state-contingent ex-post taxes or ex-post transfers. We compare those designs for different policy instruments, including taxes and tradable permits. The paper contributes to the debate on the acceptability of environmental policy in the face of aggregate risk.

Keywords: Delayed uncertainty resolution; Pigou regulation; Risk aversion (search for similar items in EconPapers)
Date: 2023-11-23
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Published in Workshop on Economics and Psychology of Climate Policy, iRisk; IESEG, Nov 2023, Lille, France

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04356714

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