Implementing second-best environmental policy under adverse selection

Second Best Environmental Policies under Uncertainty *

We construct a strategic trade model of an international duopoly, whereby production by exporting firms generates a local pollutant. Governments use environmental policies, i.e., an emissions standard or a tax, to control pollution and for rent shifting purposes. Contrary to their firm, however, governments are unable to perfectly foresee the actual level of demand, the cost of abatement and th...

Environmental Policy Making in a Second-best Setting

This paper uses analytically tractable and numerically solved general equilibrium models to examine the significance of pre-existing distortions in factor markets for revenueneutral environmental tax reforms and for various policies involving pollution quotas and permits. Results indicate that pre-existing factor taxes generally raise the costs of these environmental policies. This reflects a t...

Empirical Characterization of Optimal Contracts Under Adverse Selection: An Environmental Policy Application

Analysis of contracts under asymmetric information typically concludes by characterizing an optimal mechanism based on the principal’s beliefs regarding agent value functions and the distribution of agent types. This article demonstrates how tools from stochastic frontier analysis allow a principal to develop consistent beliefs using data that does not include agents’ private information. I emp...

Second-Best Pollution Taxation and Environmental Quality

This paper deals with second-best pollution taxation by investigating allocations instead of the corresponding tax rates. Assuming certain restrictions on utility and that the marginal revenue from environmental taxation is positive, it is shown that environmental quality is higher in second best where only distortionary taxes are used to finance public expenditures than in the first-best optim...

Environmental Policy Aid Under Uncertainty