Instant Efficient Pollution Abatement Under Non-Linear Taxation and Asymmetric Information: The Differential Tax Revisited

27 Pages Posted: 5 Oct 2004

Date Written: July 2004

Abstract

This paper analyzes incentives for polluting firms to exchange abatement cost information under the non-linear pollution tax scheme ('differential tax') introduced by Kim and Chang [J. Regul. Econom. 5, 1993, 193-197]. It shows that polluting firms have - under mild conditions - an incentive to join a coalition whose members mutually truthfully exchange information as well as commit themselves with respect to their abatement decisions. As a result, the differential tax triggers instantly - i.e., no abatement adaptation is needed - efficient abatement levels without the regulator knowing marginal abatement costs. Consequently, this paper shows that differential taxation results in lower social costs than traditional non-linear taxation which triggers efficient emissions only after a period of non-efficient abatement.

Keywords: Externalities, pollution taxes, coalition formation, non-linear taxation, asymmetric information, cooperative game theory

JEL Classification: C71, D62, D82, Q20

Suggested Citation

Mensink, Paulus G.C., Instant Efficient Pollution Abatement Under Non-Linear Taxation and Asymmetric Information: The Differential Tax Revisited (July 2004). FEEM Working Paper No. 124.04. Available at SSRN: https://ssrn.com/abstract=561601 or http://dx.doi.org/10.2139/ssrn.561601

Paulus G.C. Mensink (Contact Author)

Towers Perrin Amsterdam ( email )

Hullenbergweg 425
Amsterdam 1101CS
Netherlands

Register to save articles to
your library

Register

Paper statistics

Downloads
94
Abstract Views
1,485
rank
272,711
PlumX Metrics