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A Note On Emissions Taxes And Incomplete Information, Carlos A. Chavez, John K. Stranlund
A Note On Emissions Taxes And Incomplete Information, Carlos A. Chavez, John K. Stranlund
John K. Stranlund
In contrast with what we perceive is the conventional wisdom about setting emissions taxes under uncertainty, we demonstrate that setting a uniform tax equal to expected marginal damage is not generally efficient under incomplete information about firms’ abatement costs and damages from pollution. We show that efficient taxes will deviate from expected marginal damage if there is uncertainty about the slopes of the marginal abatement costs of regulated firms. Moreover, efficient emissions tax rates will vary across firms if a regulator can use observable firm-level characteristics to gain some information about how the firms’ marginal abatement costs vary.
Bankruptcy Risk And Imperfectly Enforced Emissions Taxes, John K. Stranlund, Wei Zhang
Bankruptcy Risk And Imperfectly Enforced Emissions Taxes, John K. Stranlund, Wei Zhang
John K. Stranlund
Under favorable but reasonable conditions, an imperfectly enforced emissions tax produces the efficient allocation of individual emissions control; aggregate emissions are independent of whether enforcement of the tax is sufficient to induce the full compliance of firms, and differences in individual violations are independent of firm-level differences. All of these desirable characteristics disappear when some firms under an emissions tax risk bankruptcy—the allocation of emissions control is inefficient, imperfect enforcement causes higher aggregate emissions, and financially insecure firms choose higher violations.