Optimal taxation: Timber and externalities

The paper presents a model of the relationship between timber taxation and externalities. Optimal pigouvian taxation formulas are derived within this framework for common taxes. A simulation model of Douglas fir is used to estimate the size and direction of these effects. The results show that taxation policy can have a marked impact on the production of externalities, depending on tree species and land productivity.     

Externalities, pigouvian corrections, and risk attitudes

We examine the influence of risk attitudes on the provision of an externality and on the proper size of Pigouvian correction when the externality is a random variable whose distribution is affected by an observable externality-generating activity. An intervening technology relates changes in this observable activity to the probability distribution of the relevant externality. Unlike the now-standard result in the theory of the firm involving the influence of risk attitudes on output levels, we cannot conclude that increases in risk aversion will lead necessarily to a reduction in the level of the externality. Our results are applied to a wide range of market failures.     

Externalities,expectations, and pigouvian taxes

This article derives Pigouvian-type corrective measures for reciprocal externalities when non-Nash behavior characterizes the participants. These reciprocal externalities may involve various kinds of environmental pollutants, such as acid rain. A comparison between corrective measures for Nash and non-Nash behavior demonstrates that positive conjectures, regarding the other agent's externality-generating activity, have an expectation-internalizing influence that usually reduces the required corrective measures. Negative conjectures (e.g., free-riding expectations), however, have an expectation-externalizing effect that increases the required corrective measures. The article analyzes both two-person and n-person externalities.     

Substituting pollution taxation for general taxation: Some implications for efficiency in pollutions taxation

Earlier papers have recognized that nonenvironmental benefits will be realized if pollution taxes are substituted for other taxes which impose efficiency losses on society. The purpose of this paper is to investigate the importance of these nonenvironmental benefits for the design of an efficient pollution tax. It is found that the efficient tax may be higher or lower than that conventionally defined as optimal, and that the net benefit from unrestrained pollution can have important implications for the size of the tax.     

Energy and Depletable Resources: Economics and Policy, 1973–1998

This paper reviews the impact of the literature in depletable resources and energy economics over the period 1973–1998, particularly the initial period of publication of the Journal of Environmental Economics and Management, 1974–1998. A discussion of prominent policy issues in this arena is provided, along with an indication of what academic economics papers have contributed to that debate. This is followed by a citation analysis of contributions in the fields of energy and exhaustible resource economics. For each of these two fields, a list of the top papers in each five-year period from 1974 to 1998 is presented, along with a list of the top journals in each decade, based on average citations per article. The top ten cited articles in the fields in the Journal of Environmental Economics and Management are also presented.     

Optimal Pricing of Depletable, Replaceable Resources: The Case of Landfill Tipping Fees

We develop a general model for pricing a depletable, replaceable asset, and discuss its application in determining optimal tipping fees for a sanitary landfill. We show that the optimal fee includes a component that grows at the real interest rate as space in the landfill is depleted, and then drops when a new landfill is built. Because the scarcity cost of landfill space increases as the landfill is filled, it may be optimal to delay a waste reduction program (such as recycling, composting, or incineration) until the landfill is partially full.     

Vertical fiscal externalities and the environment

We show that imposition of a state-level environmental tax in a federation crowds out pre-existing federal taxes. We explain how this vertical fiscal externality can lead unilateral state-level environmental policy to generate a welfare gain in the implementing state, at the expense of other states, even absent any environmental benefits. Using a computable general equilibrium model of the Canadian federation, we show that vertical fiscal externalities can be the major determinant of the welfare change following environmental policy implementation by a state government. Our numerical simulations indicate that – as a consequence of vertical fiscal externalities – state governments can reduce greenhouse gas emissions by over 20 percent without any net cost to themselves.     

Pesticide resistance externalities and optimal mosquito management

A simultaneous equation model of the behavior of a mosquito abatement district based on biological and economic data is presented. Results indicate high long term costs if heavy reliance on chemical pesticide control methods continue, due to a pesticide resistance buildup in the mosquito populations. Physical source reduction methods were shown to be more efficient both in the short and long run. A linear programming model is presented which optimizes the inix of chemical and physical control methods. Results indicate increasing costs of mosquito abatement as pesticide effectiveness declines.     

The resistibility and shiftability of depletable externalities

In their recently revised book Baumol and Oates (“The Theory of Environmental Policy,” 2nd ed., Cambridge Univ. Press, Cambridge, UK 1988) accept Bird's argument on the optimal taxation policy when externalities are shiftable and depletable. Their conclusion is that the standard Pigouvian tax which is placed upon the generator of a negative externality can be extended to tax the victims who shift the externality to others or extended to compensate recipients in order to achieve Pareto optimality. It is shown in this paper that their conclusion is not free from error, because the possibility of resisting a shifted externality and conjectural variations by recipients is not recognized. Whether an externality is shiftable depends not only on the shifting activity of the original victim but also the resisting activity of his neighbors and their conjectures about each other's action. As such, the shifters should be taxed and the recipients should be compensated at the same rate per unit of externality shifted if the tax base is the output of the shifting and resisting activities. On the other hand, if the tax base is the input which produced the shifting of the externality, then both the shifters and the recipients should be subject to a tax (or subsidy) per unit of input that they have engaged in. Whether it is a tax or a subsidy depends on the direction and magnitude of the conjectural variation. The model and its policy implication can be generalized to cover the omnipresent and wasteful rent seeking activities.     

Uniformity versus differentiation in regulating externalities

In the regulation of pollutant emissions, a regulator may treat different sources (with different costs and environmental damage) as though they were the same—for institutional, informational, or transaction cost reasons. This may occur despite the efficiency gains from regulatory differentiation of sources. This issue has been a source of much controversy in the environmental economics literature and is examined here from a theoretical perspective. Using a two pollutant economy, emissions and net social benefits are compared for the case of efficient, differentiated regulation and the case of uniform, undifferentiated regulation of the aggregate of the two pollutants. We show when aggregate emissions will be greater than, equal to, or less than efficient emissions and we derive conditions for each of these three possibilities. Further, we show that when marginal costs and benefits become more steeply sloped, the inefficiency associated with undifferentiated regulation increases.     

Efficiency of pollution taxation and market structure

This paper looks at the performance of a uniform pollution tax in achieving a given level of pollution abatement at least cost. It is shown that market structure is an important consideration in this performance and that in general least-cost abatement will not result from a pollution tax uniformly applied. The pattern of pollution taxes that will achieve least-cost abatement when differing degrees of market power exist among polluters is developed and discussed.     

International externalities, strategic interaction, and domestic politics

Domestic politics can sometimes play an influential role when externalities have strategic and international implications. If voters delegate the choice to policymakers and if individual countries independently determine their environmental policy using a consumption tax on the emissions generating good, the result could be an outcome that is inferior to the one preferred by the median voter in the absence of delegation. On the other hand, if the international externality is unilateral in nature, rather than reciprocal, we find that delegation is largely irrelevant, since voters’ choice of policymaker is no longer strategic in character. Similarly, if voters anticipate policymakers successfully coordinating their policies at a later stage, there also will be no difference between the policymakers’ and the median voters’ aggregate weighting of environmental emissions.     

Effluent taxation in monopoly markets

This article derives an optimal effluent tax for monopoly markets following the methodology of Asch and Seneca [J. Environ. Econ. Manag.3, 69–79 (1976)].     

Production externalities and corrective subsidies: A general equilibrium analysis

Several recent attempts have been made to demonstrate that corrective subsidies and taxes do not have symmetric allocation effects. These demonstrations have utilized graphical partial equilibrium analysis. In this paper a general equilibrium model is introduced to show that a standard partial equilibrium result may be incorrect and that subsidies may lead to equilibrium states which are socially preferred to the status quo position.     

Time delay,complexity and support for taxation

People often experience the benefits of taxation over time. We design an intertemporal market experiment with negative externalities to examine how delaying the benefits of taxation affects support for taxes. We find that when negative externalities occur immediately, people learn to adopt Pigouvian taxes, which are aimed at reducing negative externalities and restoring market efficiency. By contrast, when negative externalities are delayed, people are less receptive to taxation. This effect persists over time. Our data reveal that the strong negative delay effect can be explained in large part by narrow bracketing and the increased perceived complexity of the environment, rather than by time discounting per-se. We argue and demonstrate that increasing the transparency of intertemporal tradeoffs can effectively promote support for taxation.     

The economics of enforcing pollution taxation

The efficient structure of pollution tax policy is examined when it is recognized that enforcing compliance will be costly. There are two components of this cost: (1) the direct cost of enforcement and (2) the cost polluters incur avoiding enforcement. Considering only the first cost, the efficient pollution policy calls for a tax in excess of that conventionally recommended as efficient, T¹ but with little enforcement. Once avoidance cost is recognized the efficient policy can be substantially altered; requiring a tax lower than T¹, but with greater enforcement. Even when direct enforcement cost is zero, it is shown that there is no unique advantage to T¹ in the absence of avoidance cost.     

Carbon taxation,OPEC and the end of oil

I develop a differential game between an oil cartel and an importer investing in research and development (R&D) to reduce the cost of a green substitute to oil. In equilibrium, the cartel is forced to deter the substitute, which thus imposes a price ceiling falling over time. Credible carbon taxes are below the Pigovian level, implying the importer cannot internalise the full pollution externality, much less capture resource rents. Without carbon pricing, the importer curtails long-run pollution using a costly R&D programme. Normatively, climate policy will be more expensive if relying on green R&D programmes only.     

Pollution control and optimal taxation: A static analysis

This article attempts to contribute to the analysis of identifying an optimum tax for the generation of pollutants when both anti-bads and bads are included in the utility function. Bads and anti-bads are introduced via a technological tradeoff relationship with substitution allowed. It is shown that in some instances in order to know the optimum tax on polluters it may not be important to know the marginal damage function. A brief analysis is undertaken of the tradeoffs between private actions to reduce the effect of pollutants and collective provisions for pollution control. The analysis further demonstrates that under certain circumstances the appropriate tax on polluters can be calculated from observed defensive behavior on the part of receptors.     

Optimal management of renewable resources with growing demand and stock externalities

In an equilibrium framework, optimal management of renewable resources in the presence of growing demand or externalities leads to steady states that differ from those characterized by rate of interest equals rate of change in growth plus rate of change in prices. Measures to reach an optimum with externalities other than direct controls are found to be critically mediated by the costs of harvesting.     

Intertemporal production externalities,technical change,and public expenditure analysis

This paper discusses the implications of relative price change for public expenditure analysis involving natural environments. It develops a model which identifies those demand and supply factors which must be considered in the evaluation of the time stream of benefits associated with the amenity services provided by natural environments in their preserved status.