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Non-strategic firms with rational expectations make investment and emissions decisions. The investment rule depends on firms’ beliefs about future emissions policies. We compare emissions taxes and quotas when the (strategic) regulator and (nonstrategic) firms have asymmetric information about abatement costs, and all agents use Markov Perfect decision rules. Emissions taxes create a secondary distortion at the investment stage, unless a particular condition holds; emissions quotas do not create a secondary distortion. We solve a linear-quadratic model calibrated to represent the problem of controlling greenhouse gasses. The endogeneity of abatement capital favors taxes, and it increases abatement.

Keywords: Pollution control ; Investment ; Asymmetric information ; Rational expectations ; Choice of instruments

Subject(s): Resource /Energy Economics and Policy

Issue Date: Jul 21 2008

Publication Type: Working or Discussion Paper

PURL Identifier: http://purl.umn.edu/42877

Total Pages: 40

JEL Codes: C61; D8; H21; Q28

Series Statement: CUDARE Working Papers

1064

Record appears in: University of California, Berkeley > Department of Agricultural and Resource Economics > CUDARE Working Papers





Autor: Karp, Larry S. ; Zhang, Jiangfeng

Fuente: http://ageconsearch.umn.edu/record/42877?ln=en







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