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Emission taxes when pollution depends on location

Published online by Cambridge University Press:  09 March 2012

Walid Marrouch
Affiliation:
School of Business, Lebanese American University, Lebanon; and CIRANO. Email: walid.marrouch@lau.edu.lb
Bernard Sinclair-Desgagné
Affiliation:
HEC Montréal, 3000 Chemin de la Côte-Sainte-Catherine, Montréal (Québec), Canada H3T 2A7; CIRANO and École Polytechnique de Paris. Email: bsd@hec.ca

Abstract

It is well known that an efficient pollution taxation scheme should charge each source according to its specific marginal contribution to social damages. Despite significant advances in environmental assessment, geographic information systems and data analysis, this requirement would impose technical, informational and administrative expenses that most regulators – notably in developing countries – seem unable to afford. This paper shows that it can actually be less demanding than it seems. If polluters are price-takers, for instance, in a context where the affected population concentrates at a given location, then the optimal emission tax will disregard a source's location. Otherwise, the adjustment of the optimal tax to location will depend on the extent of a polluter's market power.

Type
Theory and Applications
Copyright
Copyright © Cambridge University Press 2012

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