Adverse Selection as a Policy Instrument: Unraveling Climate Change

Steve Cicala, David Hemous and Morten G. Olsen

No 30283, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We propose a new policy instrument that leverages adverse selection when Pigouvian policies are infeasible or undesirable. Our policy gives firms the option to pay a tax on their voluntarily disclosed emissions, or an output tax based on the average emissions among undisclosed firms. We derive sufficient statistics formulas to calculate the welfare gains relative to an output tax, and an algorithm to implement the policy with minimal information. In an application to methane emissions from oil and gas fields, our policy generates significant welfare gains. Finally, we extend our analysis to the design of international carbon policy.

JEL-codes: D82 H2 H87 K32 L51 Q54 (search for similar items in EconPapers)
Date: 2022-07
New Economics Papers: this item is included in nep-ene, nep-env and nep-reg
Note: EEE IO LE PE POL
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Citations: View citations in EconPapers (4)

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Related works:
Working Paper: Adverse selection as a policy instrument: unraveling climate change (2026)
Working Paper: Adverse Selection as a Policy Instrument: Unraveling Climate Change (2022)
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