Instrument Choice is Instrument Design

Weisbach, David A.

doi:10.2139/ssrn.1493312

Cited by 36 publications

(11 citation statements)

References 87 publications

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“…4 For example, see Morris (2011) and Resources for the Future (2011). 5 Weisbach's (2009) analysis yields similar conclusions. establishes a ceiling and/or floor price -also has exogenous prices when the floor or ceiling price is in effect.…”

Section: Introductionsupporting

confidence: 60%

Carbon Taxes vs. Cap and Trade: A Critical Review

Goulder

Schein

2013

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We examine the relative attractions of a carbon tax, a "pure" cap-and-trade system, and a "hybrid" option (a cap-and-trade system with a price ceiling and/or price floor). We show that the various options are equivalent along more dimensions than often are recognized. In addition, we bring out important dimensions along which the approaches have very different impacts. Several of these dimensions have received little attention in prior literature.

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Section: Introductionsupporting

confidence: 60%

Carbon Taxes vs. Cap and Trade: A Critical Review

Goulder

Schein

2013

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“…That is, the tax schedule is stipulated to be nonoptimal and to be immune from correction in light of the information that inevitably flows in. Kaplow and Shavell ( 2002) as well as Weisbach (2010) emphasize that Weitzman offers minimal practical justification for these assumptions and that subsequent literature does little more and, worse, fails to emphasize or sometimes even to mention the role that these restrictive assumptions play. This state of affairs is all the more surprising since most expositions purport to be generic, institutionindependent analyses of the regulation of externalities.…”

Section: Nonlinear and Adjustable Taxesmentioning

confidence: 99%

“…In both cases, firms' information about their control costs is harnessed, so that each firm's marginal cost is equated to marginal benefits. Weisbach (2010) devotes the first half of his fine paper to applying and elaborating Kaplow and Shavell's (2002) critique of Weitzman (1974) in the context of controlling greenhouse gas emissions. His motivation is that, sadly, just as the limitations of Weitzman were underappreciated a decade ago, the same holds true today, and such misunderstanding may lead to the design of regulatory schemes that are substantially and needlessly inefficient.…”

Section: Introductionmentioning

confidence: 99%

Taxes, Permits, and Climate Change

Kaplow¹

2010

U.S. Energy Tax Policy

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This essay revisits the question of instrument choice for the regulation of externalities in the context of climate change. The central point is that the Pigouvian prescription to equate marginal control costs with the expected marginal benefits of damage reduction should guide the design of both carbon taxes and permit schemes. Because expected marginal damage rises nonlinearly, a corresponding nonlinear tax -or an equivalent price implemented through a quantity-adjusted permit scheme -is second best. Also considered are political factors, distinctive features of regulating a stock pollutant, and ex ante distortions due to the anticipation of transition relief (such as by receiving more free permits for greater emissions). Finally, distributive concerns are examined, with emphasis on the conceptual and practical benefits of addressing distributive issues with the tax and transfer system rather through adjustments to regulatory schemes that usually render them less effective. JEL Classes D61, D62, H21, H23, K32, Q52, Q54, Q58

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“…Mechanisms that deal with uncertainty in a cap-and-trade system also bring it close to a tax approach, including a cost containment mechanism that places a cap or collar on allowance prices, banking that creates a floor under prices, and borrowing that provides flexibility similar to a tax. To some degree, the dichotomous choice between taxes and cap-and-trade can be a choice of design elements along a policy continuum (Weisbach 2010).…”

mentioning

confidence: 99%

The Problem of the Commons: Still Unsettled after 100 Years

Stavins

2011

American Economic Review

189

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The problem of the commons is more important to our lives and thus more central to economics than a century ago when Katharine Coman led off the first issue of the American Economic Review. As the US and other economies have grown, the carrying capacity of the planet--in regard to natural resources and environmental quality--has become a greater concern, particularly for common-property and open-access resources. The focus of this article is on some important, unsettled problems of the commons. Within the realm of natural resources, there are special challenges associated with renewable resources, which are frequently characterized by open-access. An important example is the degradation of openaccess fisheries. Critical commons problems are also associated with environmental quality. A key contribution of economics has been the development of market-based approaches to environmental protection. These instruments are key to addressing the ultimate commons problem of the twenty-first century-global climate change. (JEL Q15, Q21, Q22, Q25, Q54)

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Instrument Choice is Instrument Design

Cited by 36 publications

References 87 publications

Carbon Taxes vs. Cap and Trade: A Critical Review

Carbon Taxes vs. Cap and Trade: A Critical Review

Taxes, Permits, and Climate Change

The Problem of the Commons: Still Unsettled after 100 Years

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