Environmental Economics Seminar
The informational value of environmental taxes
INRA Research Professor at Toulouse School of Economics, member of IDEI.
We investigate the design of a pollution standard when the firms abatement costs are unknown and emissions are also taxed. A firm might go beyond the standard by equalizing their marginal abatement costs to the tax rate, thereby revealing information about its abatement cost. We analyze how a regulator can take advantage of this information to update the standard. If high enough, the tax is used as a screening device: the standard is relaxed to induce informational revelation. Standard update generates a ratchet effect: the standard becomes more stringent for a low-cost firm, which therefore might prefer to hide its cost by under-abating. We identify conditions on the tax rate and the correlation of abatement costs overtime for the screening equilibrium with information acquisition to arise. Our analysis is illustrated with the case of NOx regulation in Sweden.
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