Regulation of Stock Externalities with Correlated Abatement Costs
Regulation of Stock Externalities with Correlated Abatement Costs
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.
asymmetric information, choice of instruments, correlated costs, learning, pollution control
273-300
Karp, L.S.
261a5c1b-3f91-478a-bf2e-62793dba16fb
Zhang, J.
722d2564-f8ae-40f1-b1e1-07896b67a0d8
2005
Karp, L.S.
261a5c1b-3f91-478a-bf2e-62793dba16fb
Zhang, J.
722d2564-f8ae-40f1-b1e1-07896b67a0d8
Karp, L.S. and Zhang, J.
(2005)
Regulation of Stock Externalities with Correlated Abatement Costs.
Environmental and Resource Economics, 32 (2), .
(doi:10.1007/s10640-005-4678-6).
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.
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Published date: 2005
Keywords:
asymmetric information, choice of instruments, correlated costs, learning, pollution control
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Local EPrints ID: 39701
URI: http://eprints.soton.ac.uk/id/eprint/39701
ISSN: 0924-6460
PURE UUID: 2a6dab83-f6fa-4f68-8f1e-eb442b67988b
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Date deposited: 29 Jun 2006
Last modified: 15 Mar 2024 08:16
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Author:
L.S. Karp
Author:
J. Zhang
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