A Note on Emissions Taxes and Incomplete Information

In contrast with what we perceive is the conventional wisdom about setting emissions taxes under uncertainty, we demonstrate that setting a uniform tax equal to expected marginal damage is not generally efficient under incomplete information about firms’ abatement costs and damages from pollution. We show that efficient taxes will deviate from expected marginal damage if there is uncertainty about the slopes of the marginal abatement costs of regulated firms. Moreover, efficient emissions tax rates will vary across firms if a regulator can use observable firm-level characteristics to gain some information about how the firms’ marginal abatement costs vary.


Issue Date:
2008-07
Publication Type:
Working or Discussion Paper
Record Identifier:
http://ageconsearch.umn.edu/record/42129
PURL Identifier:
http://purl.umn.edu/42129
Total Pages:
13
JEL Codes:
L51; Q28
Series Statement:
Working Paper
2008-5




 Record created 2017-04-01, last modified 2018-01-22

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