IDEAS home Printed from https://ideas.repec.org/a/bla/jpbect/v11y2009i1p37-53.html
   My bibliography  Save this article

Production and Abatement Distortions under Noisy Green Taxes

Author

Listed:
  • HONGLI FENG
  • DAVID A. HENNESSY

Abstract

A pollution regulator seeking to maximize social surplus can be viewed as facing two efficiency problems. One is that, given abatement technology investment decisions, it should attempt to ensure that firms which should produce do produce and firms which should not produce do not produce. This ex‐post efficiency problem is not trivial when there is noise concerning the extent of environmental damage a firm does. We use a Bayesian information framework to show that the regulator may find it efficient to tax a firm that reads as a high (low) damage polluter at less (more) than the damage reading. Unfortunately when an abatement decision has to be made, this ex‐post efficient tax system also dampens the incentive to abate. In the absence of wrong‐firm concerns, a regulator can solve the abatement problem by an ex ante declaration that taxes will not be adjusted for signal noise. However, the regulator has a commitment problem as such taxes may not be ex‐post efficient. The most appropriate policy may involve a combination of instruments.

Suggested Citation

  • Hongli Feng & David A. Hennessy, 2009. "Production and Abatement Distortions under Noisy Green Taxes," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 11(1), pages 37-53, February.
    • Handle: RePEc:bla:jpbect:v:11:y:2009:i:1:p:37-53
    DOI: 10.1111/j.1467-9779.2008.01405.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.1467-9779.2008.01405.x
    Download Restriction: no
    File URL: https://libkey.io/10.1111/j.1467-9779.2008.01405.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Xepapadeas, A. P., 1995. "Observability and choice of instrument mix in the control of externalities," Journal of Public Economics, Elsevier, vol. 56(3), pages 485-498, March.
    2. Segerson, Kathleen, 1988. "Uncertainty and incentives for nonpoint pollution control," Journal of Environmental Economics and Management, Elsevier, vol. 15(1), pages 87-98, March.
    3. David A. Hennessy, 1996. "Information Asymmetry as a Reason for Food Industry Vertical Integration," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(4), pages 1034-1043.
    4. Hennessy, David A., 1996. "Information Asymmetry As a Reason for Vertical Integration," Staff General Research Papers Archive 10422, Iowa State University, Department of Economics.
    5. Millock, Katrin & Sunding, David & Zilberman, David, 2002. "Regulating Pollution with Endogenous Monitoring," Journal of Environmental Economics and Management, Elsevier, vol. 44(2), pages 221-241, September.
    6. McGuire, Thomas G. & Ruhm, Christopher J., 1993. "Workplace drug abuse policy," Journal of Health Economics, Elsevier, vol. 12(1), pages 19-38, April.
    7. Epstein, Larry G, 1980. "Decision Making and the Temporal Resolution of Uncertainty," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 21(2), pages 269-283, June.
    8. Fudenberg, Drew & Tirole, Jean, 1990. "Moral Hazard and Renegotiation in Agency Contracts," Econometrica, Econometric Society, vol. 58(6), pages 1279-1319, November.
    9. Caplin, Andrew & Nalebuff, Barry, 1991. "Aggregation and Imperfect Competition: On the Existence of Equilibrium," Econometrica, Econometric Society, vol. 59(1), pages 25-59, January.
    10. Heyes, Anthony, 2002. "A Theory of Filtered Enforcement," Journal of Environmental Economics and Management, Elsevier, vol. 43(1), pages 34-46, January.
    11. Ching-to Albert Ma, 1991. "Adverse Selection in Dynamic Moral Hazard," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(1), pages 255-275.
    12. Cabe, Richard & Herriges, Joseph A., 1992. "The Regulation of Non-Point Sources of Pollution Under Imperfect and Asymmetric Information," Staff General Research Papers Archive 10787, Iowa State University, Department of Economics.
    13. Peter Bogetoft & Henrik Ballebye Olesen, 2003. "Incentives, Information Systems, and Competition," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 85(1), pages 234-247.
    14. Cabe, Richard & Herriges, Joseph A., 1992. "The regulation of non-point-source pollution under imperfect and asymmetric information," Journal of Environmental Economics and Management, Elsevier, vol. 22(2), pages 134-146, March.
    15. James S. Shortle & Richard D. Horan, 2001. "The Economics of Nonpoint Pollution Control," Journal of Economic Surveys, Wiley Blackwell, vol. 15(3), pages 255-289, July.
    16. Arun Malik, 2007. "Optimal environmental regulation based on more than just emissions," Journal of Regulatory Economics, Springer, vol. 32(1), pages 1-16, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Corrado Di Maria & Emiliya Lazarova & Lan Lange, 2024. "Political ‘Colour’ and Firm Behaviour: Evidence from U.S. Power Plants’ Pollution Abatement," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 87(5), pages 1141-1174, May.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Millock, Katrin & Xabadia, Angels & Zilberman, David, 2012. "Policy for the adoption of new environmental monitoring technologies to manage stock externalities," Journal of Environmental Economics and Management, Elsevier, vol. 64(1), pages 102-116.
    2. Katrin Millock & Angels Xabadia & David Zilberman, 2009. "Investment Policy for New Environmental Monitoring Technologies to Manage Stock Externalities," Post-Print halshs-00367888, HAL.
    3. François Cochard & Marc Willinger & Anastasios Xepapadeas, 2005. "Efficiency of Nonpoint Source Pollution Instruments: An Experimental Study," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 30(4), pages 393-422, April.
    4. François Cochard & Marc Willinger & Anastasios Xepapadeas, 2002. "Efficiency of Nonpoint Source Pollution Instruments with Externality Among Polluters:An Experimental Study," Working Papers of BETA 2002-20, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    5. Larry Karp, 2005. "Nonpoint Source Pollution Taxes and Excessive Tax Burden," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 31(2), pages 229-251, June.
    6. Anastasios Xepapadeas, 2011. "The Economics of Non-Point-Source Pollution," Annual Review of Resource Economics, Annual Reviews, vol. 3(1), pages 355-373, October.
    7. Millock, Katrin & Sunding, David & Zilberman, David, 2002. "Regulating Pollution with Endogenous Monitoring," Journal of Environmental Economics and Management, Elsevier, vol. 44(2), pages 221-241, September.
    8. Mourad Ali & Patrick Rio, 2009. "Deterrence vs. Efficiency To Regulate Nonpoint Source Pollution," Working Papers 09-22, LAMETA, Universtiy of Montpellier, revised Dec 2009.
    9. Jensen, Frank & Jacobsen, Jette Bredahl & Thorsen, Bo Jellesmark, 2016. "Designing hunting regulation under population uncertainty and self-reporting," Journal of Forest Economics, Elsevier, vol. 24(C), pages 157-171.
    10. Kaplan, Jonathan D. & Howitt, Richard E. & Farzin, Y. Hossein, 2003. "An information-theoretical analysis of budget-constrained nonpoint source pollution control," Journal of Environmental Economics and Management, Elsevier, vol. 46(1), pages 106-130, July.
    11. Frans P. Vries & Nick Hanley, 2016. "Incentive-Based Policy Design for Pollution Control and Biodiversity Conservation: A Review," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 63(4), pages 687-702, April.
    12. Colson, Gregory & Menapace, Luisa, 2012. "Multiple receptor ambient monitoring and firm compliance with environmental taxes under budget and target driven regulatory missions," Journal of Environmental Economics and Management, Elsevier, vol. 64(3), pages 390-401.
    13. Jensen, Frank & Vestergaard, Niels, 2007. "Asymmetric information and uncertainty: The usefulness of logbooks as a regulation measure," Ecological Economics, Elsevier, vol. 63(4), pages 815-827, September.
    14. Philippe Bontems & Gilles Rotillon & Nadine Turpin, 2008. "Acceptable reforms of agri-environmental policies," Revue d'économie politique, Dalloz, vol. 118(6), pages 847-883.
    15. Y. Farzin & Jonathan Kaplan, 2004. "Nonpoint Source Pollution Control under Incomplete and Costly Information," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 28(4), pages 489-506, August.
    16. Alfons Weersink & John R. Livernois & Jason F. Shogren & James S. Shortle, 1998. "Economic Instruments and Environmental Policy in Agriculture," Canadian Public Policy, University of Toronto Press, vol. 24(3), pages 309-327, September.
    17. John A. Miranowski & Bruce A. Babcock, 2004. "Genetic Information in Agricultural Productivity and Product Development," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 86(1), pages 73-87.
    18. Walls, Margaret & McConnell, Virginia D., 2004. "Incentive-Based Land Use Policies and Water Quality in the Chesapeake Bay," Discussion Papers 10843, Resources for the Future.
    19. Suter, Jordan F. & Vossler, Christian A. & Poe, Gregory L., 2009. "Ambient-based pollution mechanisms: A comparison of homogeneous and heterogeneous groups of emitters," Ecological Economics, Elsevier, vol. 68(6), pages 1883-1892, April.
    20. Cyril Bourgeois & Pierre-Alain Jayet, 2010. "Revisited water-oriented relationships between a set of farmers and an aquifer: accounting for lag effect," Working Papers 2010/06, INRA, Economie Publique.

    More about this item

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:jpbect:v:11:y:2009:i:1:p:37-53. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/apettea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.