Second Best Environmental Policies under Uncertainty

34 Pages Posted: 23 Feb 2010

See all articles by Fabio Antoniou

Fabio Antoniou

Athens University of Economics and Business

Panos Hatzipanayotou

Athens University of Economics and Business; CESifo (Center for Economic Studies and Ifo Institute)

Phoebe Koundouri

Athens University of Economics and Business - Department of International and European Economic Studies; University of Reading - Department of Economics

Date Written: February 22, 2010

Abstract

We construct a strategic trade model of an international duopoly, whereby production by exporting firms generates a local pollutant. Governments use environmental policies, i.e., an emissions standard or a tax, to control pollution and for rent shifting purposes. Contrary to their firm, however, governments are unable to perfectly foresee the actual level of demand, the cost of abatement and the damage caused from pollution. Under these modes of uncertainty we derive sufficient conditions under which the governments optimally choose an emissions tax over an emissions standard.

Keywords: Strategic Environmental Policy, Pollution, Choice of Policy Instrument, Uncertainty

JEL Classification: F12, F18, Q58

Suggested Citation

Antoniou, Fabio and Hatzipanayotou (Xatzipanagiotou), Panagiotis (Panos) and Koundouri, Phoebe, Second Best Environmental Policies under Uncertainty (February 22, 2010). FEEM Working Paper No. 3.2010, Available at SSRN: https://ssrn.com/abstract=1556991 or http://dx.doi.org/10.2139/ssrn.1556991

Fabio Antoniou

Athens University of Economics and Business ( email )

Patission Str.
Athens, 10434
Greece

Panagiotis (Panos) Hatzipanayotou (Xatzipanagiotou) (Contact Author)

Athens University of Economics and Business ( email )

76 Patission Street
Athens, 104 34
Greece

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Phoebe Koundouri

Athens University of Economics and Business - Department of International and European Economic Studies ( email )

GR-10434 Athens
Greece
+0030 210 8203147 (Phone)
+0030 210 8214122 (Fax)

HOME PAGE: http://www.econ.ucl.ac.uk/downloads/koundouri/cv.pdf

University of Reading - Department of Economics ( email )

Reading, RG6 6AA
United Kingdom
+44 - (0)118 - 9875123 (Phone)
+44 - (0)118 - 9750236 (Fax)

HOME PAGE: http://www.rdg.ac.uk/economics/koundouri.html

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