Simple Pricing Schemes for Pollution Control under Asymmetric Information

Most policies for pricing pollution under asymmetric information proposed in the literature to date are rarely--if ever--used in practice. This is likely due to their complexity. We investigate the scope for using somewhat simpler policies that are more closely related to pricing schemes already use...

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Main Authors:	Kennedy, Peter W., Laplante, Benoit, Whittington, Dale
Format:	Journal Article
Language:	EN
Published:	2012
Subjects:	Asymmetric and Private Information D820 Air Pollution Water Pollution Noise Hazardous Waste Solid Waste Recycling Q530 Environmental Economics: Government Policy Q580
Online Access:	http://hdl.handle.net/10986/4612

id	okr-10986-4612
recordtype	oai_dc
spelling	okr-10986-46122021-04-23T14:02:18Z Simple Pricing Schemes for Pollution Control under Asymmetric Information Kennedy, Peter W. Laplante, Benoit Whittington, Dale Asymmetric and Private Information D820 Air Pollution Water Pollution Noise Hazardous Waste Solid Waste Recycling Q530 Environmental Economics: Government Policy Q580 Most policies for pricing pollution under asymmetric information proposed in the literature to date are rarely--if ever--used in practice. This is likely due to their complexity. We investigate the scope for using somewhat simpler policies that are more closely related to pricing schemes already used by regulators in many jurisdictions. These schemes have a discrete block pricing (DBP) structure whereby a given unit price for pollution is applied up to a specified level of pollution for any given polluter, and a higher unit price is applied to any pollution from that polluter above the specified level. If the same price schedule is applied uniformly to all firms, we call it UDBP. We derive the optimal UDBP schedule for any given number of price blocks. We also derive the optimal limiting case of the UDBP schedule (with an infinite number of price blocks) as a uniform linear increasing marginal price schedule (ULIMP). The optimal ULIMP scheme strikes a balance between the information-related benefits of increasing marginal prices on one hand, and an increase in aggregate abatement cost, due to the non-equalization of marginal abatement costs across firms, on the other. In particular, the optimal schedule is steeper with larger aggregate uncertainty about marginal abatement costs, and flatter with more observable heterogeneity across firms. We then compare our price schemes with those proposed by Weitzman (1978) and Roberts and Spence (1976). 2012-03-30T07:28:49Z 2012-03-30T07:28:49Z 2010 Journal Article B.E. Journal of Economic Analysis and Policy: Advances in Economic Analysis and Policy 19351682 http://hdl.handle.net/10986/4612 EN http://creativecommons.org/licenses/by-nc-nd/3.0/igo World Bank Journal Article
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	EN
topic	Asymmetric and Private Information D820 Air Pollution Water Pollution Noise Hazardous Waste Solid Waste Recycling Q530 Environmental Economics: Government Policy Q580
spellingShingle	Asymmetric and Private Information D820 Air Pollution Water Pollution Noise Hazardous Waste Solid Waste Recycling Q530 Environmental Economics: Government Policy Q580 Kennedy, Peter W. Laplante, Benoit Whittington, Dale Simple Pricing Schemes for Pollution Control under Asymmetric Information
relation	http://creativecommons.org/licenses/by-nc-nd/3.0/igo
description	Most policies for pricing pollution under asymmetric information proposed in the literature to date are rarely--if ever--used in practice. This is likely due to their complexity. We investigate the scope for using somewhat simpler policies that are more closely related to pricing schemes already used by regulators in many jurisdictions. These schemes have a discrete block pricing (DBP) structure whereby a given unit price for pollution is applied up to a specified level of pollution for any given polluter, and a higher unit price is applied to any pollution from that polluter above the specified level. If the same price schedule is applied uniformly to all firms, we call it UDBP. We derive the optimal UDBP schedule for any given number of price blocks. We also derive the optimal limiting case of the UDBP schedule (with an infinite number of price blocks) as a uniform linear increasing marginal price schedule (ULIMP). The optimal ULIMP scheme strikes a balance between the information-related benefits of increasing marginal prices on one hand, and an increase in aggregate abatement cost, due to the non-equalization of marginal abatement costs across firms, on the other. In particular, the optimal schedule is steeper with larger aggregate uncertainty about marginal abatement costs, and flatter with more observable heterogeneity across firms. We then compare our price schemes with those proposed by Weitzman (1978) and Roberts and Spence (1976).
format	Journal Article
author	Kennedy, Peter W. Laplante, Benoit Whittington, Dale
author_facet	Kennedy, Peter W. Laplante, Benoit Whittington, Dale
author_sort	Kennedy, Peter W.
title	Simple Pricing Schemes for Pollution Control under Asymmetric Information
title_short	Simple Pricing Schemes for Pollution Control under Asymmetric Information
title_full	Simple Pricing Schemes for Pollution Control under Asymmetric Information
title_fullStr	Simple Pricing Schemes for Pollution Control under Asymmetric Information
title_full_unstemmed	Simple Pricing Schemes for Pollution Control under Asymmetric Information
title_sort	simple pricing schemes for pollution control under asymmetric information
publishDate	2012
url	http://hdl.handle.net/10986/4612
_version_	1764392117939994624

Simple Pricing Schemes for Pollution Control under Asymmetric Information

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