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Environmental taxation, information precision, and information sharing
Author(s) -
Elnaboulsi Jihad C.,
Daher Wassim,
Sağlam Yiğit
Publication year - 2023
Publication title -
journal of public economic theory
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.809
H-Index - 32
eISSN - 1467-9779
pISSN - 1097-3923
DOI - 10.1111/jpet.12609
Subject(s) - collusion , externality , economics , microeconomics , private information retrieval , marginal cost , economic surplus , damages , welfare , information asymmetry , information sharing , market failure , social welfare , set (abstract data type) , complete information , computer science , market economy , programming language , computer security , political science , law , world wide web
We analyze how environmental taxes should be optimally levied in a sequential game in which regulators and firms face costs uncertainties. First, the regulator chooses the intensity of emissions taxes to reduce externalities. Then, facing common and private information with noisy signals, firms compete in the marketplace and choose outputs. We show that, under nonuniform quality of signals across firms, the regulator may calibrate differentiated tax policy. We also show that the social impact of more precise private signals hinges largely and fundamentally on the value of the ratio of the slopes of the marginal damage and the marginal consumer surplus. Finally, we investigate information sharing between polluters and its impacts on welfare. We stress that, when there are threats of severe environmental damages under deep uncertainties, collusion is welfare reducing and may jeopardize the regulatory process. Regulators need to set an appropriate precautionary policy. Numerical simulations illustrate the results that the model delivers.