The choice of environmental policy instruments under correlated uncertainty

TitleThe choice of environmental policy instruments under correlated uncertainty
Publication TypeJournal Article
Year of Publication2001
AuthorsShrestha, RK
JournalResource and Energy Economics
Volume23
Issue2
Pagination175-185
ISBN Number0928-7655
Abstract

This paper analyzes how the presence of correlated uncertainty between the cost and benefit of environmental pollution control can affect the choice of policy instruments. It is shown that the superiority of the nonlinear-tax instrument in which the corrective tax coincides with the expected schedule of marginal benefit may break down in favor of a linear-tax or a quantity instrument when the policy environment shifts from the case of independently distributed to the case of correlated uncertainties. With various combinations of parameter values of thr two probability distributions, we also construct three distinct ranges in each of which one instrument turns out to be superior to the other two. (C) 2001 Elsevier Science B.V. All rights reserved.

DOI10.1016/S0928-7655(00)00043-9