The ambient tax is often considered as an effcient instrument to achieve a ﬁrst best outcome of ambient pollution when the regulator is less informed than the polluters. Since the ambient tax was never implemented in the ﬁeld, empirical evidence is missing. Available experimental ﬁndings provide mixed evidence: effciency is higher under external damage, i.e. if ambient pollution affects non-polluters (Spraggon, 2002, 2003) than under internal damage, i.e. if ambient pollution affects polluters themselves (Cochard et al., 2005). Since these two types of experiments relied on very different designs, it is worthwhile to compare them under a common experimental design. Our main ﬁnding is that the ambient tax is equally effcient under external damage than under internal damage.
Performance of the ambient tax: does the nature of the damage matter?
14 January 2014