Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/154887
Authors: 
Hoel, Michael
Karp, Larry S.
Year of Publication: 
1998
Series/Report no.: 
Nota di Lavoro, Fondazione Eni Enrico Mattei 29.1998
Abstract: 
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, taxes are more likely to dominate quotas the greater is the curvature of the abatement cost function relative to the environmental damage function. However, in the dynamic model, an increase in the discount rate, the stock decay rate, or either the regulator's or the firms' ability to make adjustments, all increase the likelihood that taxes dominate quotas. An empirical illustration of these results suggests that taxes dominate quotas for the control of greenhouse gases.
Subjects: 
Pollution control
Asymmetric information
Taxes and quotas
Stochastic control
JEL: 
H21
Q28
Document Type: 
Working Paper

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