Environmental Policy à la Carte: Letting Firms Choose their Regulation

Krysiak, Frank C. and Oberauner, Iris Maria. (2008) Environmental Policy à la Carte: Letting Firms Choose their Regulation. WWZ Discussion Papers, 2008 (04).

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Official URL: https://edoc.unibas.ch/61505/

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Environmental policy often has to be devised under informational constraints, like uncertainty and asymmetric information. We consider an environmental policy that aims at reducing the welfare losses caused by asymmetric information while being sufficiently simple for implementation. In this policy, firms can choose between being regulated with an emission tax or a permit market. This serves as a screening device; the firms reveal private information by choosing an instrument. We show that such a menu of policy options improves upon conventional environmental policy. Furthermore, the optimal policy is simple and thus easily implementable. The approach is also theoretically interesting, because the simultaneous use of price- and quantity-based instruments induces an asymmetry into the pricesversus-quantities decision compared to Weitzman’s criterion. Especially, there can be an optimal pooling equilibrium where all firms choose the tax, but it is never optimal that all firms participate in permit trading.
Faculties and Departments:06 Faculty of Business and Economics > Departement Wirtschaftswissenschaften > Professuren Wirtschaftswissenschaften > Umweltökonomie (Krysiak)
12 Special Collections > WWZ Publications > WWZ Discussion Papers and Working Papers
UniBasel Contributors:Krysiak, Frank Christian and Oberauner, Iris
Item Type:Working Paper
Publisher:WWZ, University of Basel
Number of Pages:28
Note:Publication type according to Uni Basel Research Database: Discussion paper / Internet publication
Identification Number:
  • handle: RePEc:bsl:wpaper:2008/04
edoc DOI:
Last Modified:16 Mar 2018 15:21
Deposited On:08 Mar 2018 11:29

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