Zhang Regulation of Stock Externalities with Correlated Abatement Costs：（张的监管股票外部性相关的减排成本）.pdfVIP

Environmental Resource Economics (2005) 32: 273–299 Springer 2005 DOI 10.1007/s10640-005-4678-6 Regulation of Stock Externalities with Correlated Abatement Costsw LARRY KARP1; and JIANGFENG ZHANG2 1Department of Agricultural and Resource Economics, University of California, Berkeley, CA 94720, USA; 2 Asian Development Bank; Author for correspondence (e-mail: karp@ ) Accepted 14 March 2005 Abstract. We study a dynamic regulation model where firms’ actions contribute to a stock externality. The regulator and firms have asymmetric information about serially correlated abatement costs. With price-based policies such as taxes, or if firms trade quotas efficiently, the regulator learns about the evolution of both the stock and costs. This ability to learn about costs is important in determining the ranking of taxes and quotas, and in determining the value of a feedback rather than an open-loop policy. For a range of parameter values com- monly used in global warming studies, taxes dominate quotas, regardless of whether the regulator uses an open-loop or a feedback policy, and regardless of the extent of cost corre- lation. Key words: asymmetric information, choice of instruments, correlated costs, learning, pollu- tion control JEL classifications: C61, D8, H21, Q28 1. Introduction The possibility of global warming has revived interest in comparing taxes and quotas when the regulator and firms have asymmetric information about abatement costs. Weitzman (1974) showed that there is a simple criterion for ranking the policies when abatement costs and environmental damages are quadratic functions of theflow of pollution, uncertainty enters additively (i.e., it affects the level but not the slope of the firm’s marginal costs), and the optimal quantity restriction is binding with probability one.1 When the externality is caused by a stock rather than a flow the reg