Taxes and Quotas for a Stock Pollutant with Multiplicative Uncertainty

Hoel, Michael; Karp, Larry S.

doi:10.2139/ssrn.158808

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Taxes and Quotas for a Stock Pollutant with Multiplicative Uncertainty

Fondazione Eni Enrico Mattei Working Paper No. 15.99

20 Pages Posted: 7 Apr 1999

See all articles by Michael Hoel

Michael Hoel

University of Oslo; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Larry S. Karp

University of California, Berkeley

Date Written: March 4, 1999

Abstract

We compare taxes and quotas when firms and the regulator have asymmetric information about abatement costs. Damages are caused by a stock pollutant. Uncertainty enters multiplicatively, i.e. it affects the slope rather than the intercept of abatement costs. We calibrate the model using cost and damage estimates of greenhouse gases. As with additive uncertainty, taxes dominate quotas. The advantage of taxes is much greater with mulitiplicative, compared to additive uncertainty.

Note: This paper is an extension of an earlier work, "Taxes versus Quotas for a Stock Pollutant". It is available at the following URL: http://papers.ssrn.com/paper.taf?abstract_id=128675

JEL Classification: H21, Q28

Suggested Citation: Suggested Citation

Hoel, Michael and Karp, Larry S., Taxes and Quotas for a Stock Pollutant with Multiplicative Uncertainty (March 4, 1999). Fondazione Eni Enrico Mattei Working Paper No. 15.99, Available at SSRN: https://ssrn.com/abstract=158808 or http://dx.doi.org/10.2139/ssrn.158808