Durable Emissions and Optimal Pigouvian Taxes

Public Finance Review, vol. 32, no. 4, pp. 441-449

Posted: 6 Apr 2016

See all articles by Rajeev K. Goel

Rajeev K. Goel

Illinois State University - Department of Economics

Edward Hsieh

Independent

Date Written: 2004

Abstract

This article examines the effectiveness of socially optimal taxes in controlling pollution (or other external effects) generated by a monopolist when pollution is a by-product of production and when emissions themselves are durable. Existing research has paid inadequate attention to the durability aspect, both of the product and of the resulting pollutants. In the two-period model presented here, a social planner minimizes social damage by setting the per-unit Pigouvian tax on a polluting monopolist. Results show that for a given level of production, the durability of emissions and the socially optimal Pigouvian tax are negatively related. This result holds irrespective of the durability of the good under production. The effect of a change in product durability is shown to depend on the output scale effects. Public policy implications are discussed.

Suggested Citation

Goel, Rajeev K. and Hsieh, Edward, Durable Emissions and Optimal Pigouvian Taxes (2004). Public Finance Review, vol. 32, no. 4, pp. 441-449. Available at SSRN: https://ssrn.com/abstract=2758979

Rajeev K. Goel (Contact Author)

Illinois State University - Department of Economics ( email )

Normal, IL 61790-4200
United States

Edward Hsieh

Independent ( email )

No Address Available
United States

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