Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/123395
Authors: 
Krysiak, Frank C.
Oberauner, Iris Maria
Year of Publication: 
2008
Series/Report no.: 
WWZ Working Paper 04/08
Abstract: 
Environmental policy often has to be devised under informational constraints, like uncertainty and asymmetric information. We consider an environmental policy that aims at reducing the welfare losses caused by asymmetric information while being sufficiently simple for implementation. In this policy, firms can choose between being regulated with an emission tax or a permit market. This serves as a screening device; the firms reveal private information by choosing an instrument. We show that such a menu of policy options improves upon conventional environmental policy. Furthermore, the optimal policy is simple and thus easily implementable. The approach is also theoretically interesting, because the simultaneous use of price- and quantity-based instruments induces an asymmetry into the pricesversus- quantities decision compared to Weitzman's criterion. Especially, there can be an optimal pooling equilibrium where all firms choose the tax, but it is never optimal that all firms participate in permit trading.
Subjects: 
Environmental Policy
Asymmetric Information
Screening
Uncertainty
Prices-versus-Quantities
JEL: 
Q58
D82
H23
D81
Q54
Document Type: 
Working Paper

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