2012
DOI: 10.1007/s10797-012-9234-z
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First-and second-best allocations under economic and environmental uncertainty

Abstract: This paper uses a micro-founded DSGE model to compare second-best optimal environmental policy and the resulting allocation to first-best allocation. The focus is on the source and size of uncertainty, and how this affects optimal choices and the inferiority of second best vis-à-vis first best.

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Cited by 103 publications
(81 citation statements)
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“…The first row presents the response to an increase in productivity A t , which has a positive impact on output. Consistently with the results of Heutel (2012) and Angelopoulos et al (2013), we show that the optimal emissions tax is procyclical, being so able to mitigate the increase of emissions due to the expansion of output. Without this positive reaction of the emissions tax, in fact, emissions would be more procyclical than under the Ramsey allocation.…”
Section: Ramsey Environmental Policysupporting
confidence: 90%
See 2 more Smart Citations
“…The first row presents the response to an increase in productivity A t , which has a positive impact on output. Consistently with the results of Heutel (2012) and Angelopoulos et al (2013), we show that the optimal emissions tax is procyclical, being so able to mitigate the increase of emissions due to the expansion of output. Without this positive reaction of the emissions tax, in fact, emissions would be more procyclical than under the Ramsey allocation.…”
Section: Ramsey Environmental Policysupporting
confidence: 90%
“…In a similar setup, Angelopoulos et al (2013) demonstrate that the Ramsey government finds it optimal to cut taxes in response to a negative productivity shock in order to stimulate the economy, while in response to an adverse pollution shock it increases taxes to finance abatement spending in the attempt to mitigate the negative effects on the environment.…”
Section: Introductionmentioning
confidence: 99%
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“…The producer uses capital as the only production factor to produce final goods and services and the consumer derives utility from consumption of final goods u ( c t ). Like many other emissions reduction policy analyses (such as Kelly ; Heutel ; Angelopoulos, Economides and Philippopoulos ), labour is not included for simplicity since employment fluctuation is not the interest of this study. As a RBC model, output at each period y t can be affected by stochastic TFP a t .…”
Section: Modelmentioning
confidence: 99%
“…2 In this respect, see the papers by Springborn (2011), Heutel (2012), Angelopoulos et al (2013) and Bosetti and Maffezzoli (2014) who conduct their analysis in real business cycle type models studying environmental regulation in the context of uncertainty. 3 Further, by introducing imperfect price adjustments and lack of perfect competition, Ganelli and Tervala (2011) develop a fully-fledged open economy New Keynesian model designed for the study of the international transmission of environmental policy shocks, while Annicchiarico and Di Dio (2015) develop a closed economy New Keynesian model to study the business cycle under alternative environmental policy regimes (i.e.…”
Section: Introductionmentioning
confidence: 99%