Production and Abatement Distortions under Noisy Green Taxes

dc.contributor.author Feng, Hongli
dc.contributor.author Hennessy, David
dc.contributor.department Economics
dc.contributor.department Center for Agricultural and Rural Development
dc.date 2021-08-03T13:59:29.000
dc.date.accessioned 2021-08-14T04:32:11Z
dc.date.available 2021-08-14T04:32:11Z
dc.date.copyright Thu Jan 01 00:00:00 UTC 2009
dc.date.issued 2009-02-01
dc.description.abstract <p>A pollution regulator seeking to maximize social surplus can be viewed as facing two efficiency problems. One is that, given abatement technology investment decisions, it should attempt to ensure that firms which should produce do produce and firms which should not produce do not produce. This ex-post efficiency problem is not trivial when there is noise concerning the extent of environmental damage a firm does. We use a Bayesian information framework to show that the regulator may find it efficient to tax a firm that reads as a high (low) damage polluter at less (more) than the damage reading. Unfortunately when an abatement decision has to be made, this ex-post efficient tax system also dampens the incentive to abate. In the absence of wrong-firm concerns, a regulator can solve the abatement problem by an <em>ex ante</em> declaration that taxes will not be adjusted for signal noise. However, the regulator has a commitment problem as such taxes may not be ex-post efficient. The most appropriate policy may involve a combination of instruments.</p>
dc.description.comments <p>This is a working paper of an article published as Feng, H., and D.A. Hennessy. “Production and Abatement Distortions under Noisy Green Taxes”, <em>J</em><em>ournal of Public Economic Theory</em>, 2009 (February), 11(1): 37-53. doi:<a href="https://doi.org/10.1111/j.1467-9779.2008.01405.x">10.1111/j.1467-9779.2008.01405.x</a>. Posted with permission.</p>
dc.format.mimetype application/pdf
dc.identifier archive/lib.dr.iastate.edu/econ_las_pubs/793/
dc.identifier.articleid 1806
dc.identifier.contextkey 24079330
dc.identifier.s3bucket isulib-bepress-aws-west
dc.identifier.submissionpath econ_las_pubs/793
dc.identifier.uri https://dr.lib.iastate.edu/handle/20.500.12876/RwyqAldw
dc.language.iso en
dc.source.uri https://lib.dr.iastate.edu/cgi/viewcontent.cgi?article=1428&context=card_workingpapers
dc.subject.disciplines Environmental Studies
dc.subject.disciplines Public Economics
dc.subject.disciplines Taxation
dc.title Production and Abatement Distortions under Noisy Green Taxes
dc.type article
dc.type.genre article
dspace.entity.type Publication
relation.isOrgUnitOfPublication 4c5aa914-a84a-4951-ab5f-3f60f4b65b3d
relation.isOrgUnitOfPublication 1a6be5f1-4f64-4e48-bb66-03bbcc25c76d
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