Taxes Versus Quotas for a Stock Pollutant

We compare the effects of taxes and quotas for an environmental problem in which the regulator and polluter have asymmetric information about abatement costs, and the environmental damage depends on the stock of pollution. We thus extend, to a dynamic framework, previous studies in which environmental damages depend on the flow of pollution. As with the static analysis, an increase in the slope of the marginal abatement cost curve, or a decrease in the slope of the marginal damage curve, favors taxes. In addition, in the dynamic model, an increase in the discount rate or the stock decay rate favor the use of taxes. Taxes certainly dominate quotas if the length of a period during which decisions are constant is sufficiently small. An empirical illustration suggests that taxes dominate quotas for the control of greenhouse gasses.


Issue Date:
2001
Publication Type:
Working or Discussion Paper
PURL Identifier:
http://purl.umn.edu/25010
Total Pages:
35
JEL Codes:
H21; Q28
Series Statement:
CUDARE Working Paper 855




 Record created 2017-04-01, last modified 2017-08-24

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