Abstract
We study a dynamic regulation model where firms’ actions contribute to a stock externality. The regulator and firms have asymmetric information about serially correlated abatement costs. With price-based policies such as taxes, or if firms trade quotas efficiently, the regulator learns about the evolution of both the stock and costs. This ability to learn about costs is important in determining the ranking of taxes and quotas, and in determining the value of a feedback rather than an open-loop policy. For a range of parameter values commonly used in global warming studies, taxes dominate quotas, regardless of whether the regulator uses an open-loop or a feedback policy, and regardless of the extent of cost correlation.
Similar content being viewed by others
References
Brozovic, N., D. Sunding and D. Zilberman (2002), ‘Prices vs. Quantities Reconsidered’, Giannini Foundation Working paper.
C. Costello L. Karp (2004) ArticleTitle‘Dynamic Taxes and Quotas with Learning’ Journal of Economic Dynamics and Control 28 IssueID8 161–180 Occurrence Handle10.1016/S0165-1889(03)00082-4
P. Dasgupta P. Hammond E. Maskin (1980) ArticleTitle‘On Imperfect Information and Optimal Pollution Control’ Review of Economic Studies 47 IssueID5, 857–860 47–5, 857860
M. Hoel L. Karp (2001) ArticleTitle‘Taxes and Quotas for a Stock Pollutant with Multiplicative Uncertainty’ Journal of Public Economics 82 91–114 Occurrence Handle10.1016/S0047-2727(00)00136-5
M. Hoel L. Karp (2002) ArticleTitle‘Taxes Versus Quotas for a Stock Pollutant’ Resource and Energy Economics 24 367–384 Occurrence Handle10.1016/S0928-7655(02)00014-3
Karp, L. and J. Zhang (2002a), ‘Controlling a Stock Pollutant with Endogenous Abatement Capital and Asymmetric Information’, Giannini Foundation of Agricultural Economics, Working Paper No. 928, University of California, Berkeley; http://are.Berkeley.EDU/karp/.
Karp, L. and J. Zhang (2002b), ‘Regulation with Anticipated Learning about Environmental Damage’, Giannini Foundation of Agricultural Economics Working, Paper No. 926, University of California, Berkeley; http://are.Berkeley.EDU/karp/.
C.D. Kolstad (1996) ArticleTitle‘Learning and Stock Effects in Environmental Regulation: The Case of Greenhouse Gas Emissions’ Journal of Environmental Economics and Management 31 IssueID1 1–18 Occurrence Handle10.1006/jeem.1996.0028
E. Kwerel (1977) ArticleTitle‘To Tell the Truth: Imperfect Information and Optimal Pollution Control’ Review of Economic Studies 44 IssueID3 595–601
J. Malcomson (1978) ArticleTitle‘Prices vs Quantities: A Critical Note on the Use of Approximations’ Review of Economic Studies 45 IssueID1 203–207
R. Newell W. Pizer (2003) ArticleTitle‘Regulating Stock Externalitiues Under Uncertainty’ Journal of Environmental Economics and Management 45 416–432 Occurrence Handle10.1016/S0095-0696(02)00016-5
Nordhaus, W. D. (1994) ‘Expert Opinion on Climate Change’, American Scientist 45–51.
M. Roberts A. Spence (1976) ArticleTitle‘Effluent charges and licenses under uncertainty’ Journal of Public Economics 5 IssueID3–4 193–208 Occurrence Handle10.1016/0047-2727(76)90014-1
Staring, K. (1995), ‘Regulering av forurensing under usikkerhet – en dynamisk modell – Regulation of Pollution Under Uncertainty – A Dynamic Model’, Master degree thesis, Department of Economics, University of Oslo.
R. Stavins (1996) ArticleTitle‘Correlated Uncertainty and Policy Instrument Choice’ Journal of Environmental Economics and Management 30 IssueID2 218–232 Occurrence Handle10.1006/jeem.1996.0015
W. Watson R. Ridker (1984) ArticleTitle‘Losses from Effluent Taxes and Quotas under Uncertainty’ Journal of Environmental Economics and Management 11 IssueID4 310–326 Occurrence Handle10.1016/0095-0696(84)90002-0
M. Weitzman (1974) ArticleTitle‘Prices Versus Quantities’ Review of Economic Studies 41 IssueID4 477–491
Author information
Authors and Affiliations
Corresponding author
Additional information
Early versions of this paper were presented at the Fifth California Workshop on Environmental and Resource Economics, University of California, Santa Barbara, CA, May 5–6, 2000, and at the annual meeting of the Canadian Agricultural Economics Society, University of British Columbia, Vancouver, BC, Canada, June 1–3, 2000. We thank these conference participants, and two anonymous referees of this journal for their comments, without implicating them in any remaining errors. The opinions expressed in this paper do not necessarily reflect the views of the Asian Development Bank.
Rights and permissions
About this article
Cite this article
Karp, L., Zhang, J. Regulation of Stock Externalities with Correlated Abatement Costs. Environ Resource Econ 32, 273–300 (2005). https://doi.org/10.1007/s10640-005-4678-6
Accepted:
Issue Date:
DOI: https://doi.org/10.1007/s10640-005-4678-6