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Quotas may beat taxes in a global emission game


Reference:

Endres, A. and Finus, M., 2002. Quotas may beat taxes in a global emission game. International Tax and Public Finance, 9 (6), pp. 687-707.

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Official URL:

http://dx.doi.org/10.1023/A:1020911130175

Abstract

Economists have persistently argued that market-based instruments are better suited than command and control instruments (CAC) to achieve pollution abatement targets cost-effectively. However, this advice has not yet fallen on fertile soil. CAC is the predominant instrument in practical environmental policy. The paper attempts to give an explanation for this observation by analyzing two countries negotiating emission reductions in a world with "typical" institutional restrictions. Negotiations are assumed to be either on a uniform emission reduction quota or a uniform emission tax. Counterintuitively, it turns out that in such a second-best world an agreement under a cost-inefficient quota regime may be superior to an efficient tax agreement with respect to ecological and welfare criteria. Moreover, in contrast to a quota agreement, a tax agreement may not be feasible and stable if countries exhibit asymmetric cost-benefit structures.

Details

Item Type Articles
CreatorsEndres, A.and Finus, M.
DOI10.1023/A:1020911130175
DepartmentsFaculty of Humanities & Social Sciences > Economics
RefereedYes
StatusPublished
ID Code28409

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