The Role of Information Provision as a Policy Instrument to Supplement Environmental Taxes: Empowering Consumers to Choose Optimally

The present paper examines, within a dynamic framework, the use of information provision as a policy instrument to supplement environmental taxation. We assume that at least a fraction of consumers do not posses the required information to make the optimal choices, and that their behavior at each time period depends on the accumulated stock of information. We show that, as the accumulated stock of information provision increases, both the optimal level of information provided at each period of time and the optimal tax rate decline over time. Our results provide strong evidence in support of information campaigns as a policy instrument to supplement traditional environmental policies. Information provision can shift the demand towards environmentally friendly products over time and thus, reduce the required level of the tax rate.Information Provision, Environmental Taxation

The role of information provision as a policy instrument to supplement environmental taxes: Empowering consumers to choose optimally

The present paper examines, within a dynamic framework, the use of information provision as a policy instrument to supplement environmental taxation. We assume that at least a fraction of consumers do not posses the required information to make the optimal choices, and that their behavior at each time period depends on the accumulated stock of information. We show that, as the accumulated stock of information provision increases, both the optimal level of information provided at each period of time and the optimal tax rate decline over time. Our results provide strong evidence in support of information campaigns as a policy instrument to supplement traditional environmental policies. Information provision can sift the demand towards environmentally friendly products over time and thus, reduce the required level of the tax rate.Information provision, environmental taxes, policy instruments

The role of information provision as a policy instrument to supplement environmental taxes: Empowering consumers to choose optimally

This paper examines, within a dynamic framework, the role of information provision as a policy instrument to supplement environmental taxation. Several products are responsible for long term health problems as well as environmental damages. Many consumers do not possess the required information to optimally substitute away from these products. However, as the stock of information regarding the negative effects of these products builds up, an increasing fraction of consumers behaves optimally. The government uses two policy instruments, environmental taxation and information provision. We show that as the accumulated stock of information increases, the optimal tax rate declines over time. Information provision can shift market demand towards environmentally friendly goods over time, and thus reduce the required level of the tax rate. Our results provide strong evidence in support of information campaigns as a policy instrument to supplement traditional environmental policies.

Dynamic Regulation of Public Good Quality

We investigate the design of incentives for public good quality provision in a dynamic regulation setting in which maintenance efforts and quality shocks have durable effects. When the regulator contracts with a sequence of agents, asymmetries of information can lead to over-provision of quality under optimal regulation, reflecting a dynamic rent extraction motive. When the regulator hires a single agent to manage public good quality, over-provision of quality can also occur as a result of quality pooling, which typically occurs if quality depreciates slowly and the discount factor is large. We further show that for small levels of asymmetric information, the regulator prefers to hire a single agent rather than to contract with a sequence of agents, provided all parties can commit to a long-term contract. When no such commitment is feasible, the fact that quality physically links periods together leads to a ratchet effect even when private information is recurring, and shorter franchises are beneficial from a social point of view.Quality, Regulation, Asymmetric Information

Venture Capital Financing, Moral Hazard and Learning

We consider the provision of venture capital in a dynamic agency model. The value of the venture project is initially uncertain and more information arrives by developing the project. The allocation of the funds and the learning process are subject to moral hazard. The optimal contract is a time-varying share contract which provides intertemporal risk-sharing between venture capitalist and entrepreneur. The share of the entrepreneur reflects the value of a real option. The option itself is based on the control of the funds. The dynamic agency costs may be high and lead to an ine¢cient early stopping of the project. A positive liquidation value explains the adoption of strip financing or convertible securities. Finally, relationship financing, including monitoring and the occasional replacement of the management improves the efficiency of the financial contracting.venture financing;optimal stopping;dynamic financial constraints;share contracts;security design

Advance-Purchase Programs: When to Introduce and What to Inform Consumers

We study a two-stage model in which the information processed by consumers at the first stage (advance-purchase stage) is endogenously determined. In the model, the firm decides whether to introduce an advance-purchase program, chooses what attribute information to disclose and determines an advance-purchase price and a retail price. Forward-looking consumers strategically choose, based on the disclosed information, to buy in advance or to make a purchase decision at the second stage (retail stage) when all information is revealed. We characterize the firm's optimal choice on the advance-purchase program and the strategy of information disclosure. In particular, we show that the firm always prefers to introduce the advance-purchase program except when underlying consumer preferences are extremely homogenous. In addition, we find that fully revealing horizontal product information at the advance-purchase stage is never optimal to the firm, but revealing either partial or no product information can be optimal depending on the underlying consumer preferences. Our finding that partial information disclosure is sometimes optimal to the firm is in contrast to the result in the literature of horizontal information provision that a firm maximizes profit by revealing either no or full information to consumers.advance purchase, information disclosure, dynamic pricing

Progressive Screening: Long-Term Contracting with a Privately Known Stochastic Process

We examine a model of long-term contracting in which the buyer is privately informed about the stochastic process by which her value for a good evolves. In addition, her realized values are also her private information. We characterize the profit-maximizing long-term contract offered by a monopolist in this setting. This optimal contract consists of a menu of deterministic sequences of static contracts. Within each sequence, higher real- ized values lead to greater quantity provision; however, an increasing proportion of buyer types are excluded over time (eventually leading to inefficient early termination of the re- lationship). Moreover, the menu choices differ by future generosity, with more costly (up- front) plans guaranteeing greater quantity provision in the future. Thus, the seller screens buyers in the initial period, and then progressively screens additional buyers so as to re- duce the information rents paid in future periods.Asymmetric information, Dynamic mechanism design, Long-term contracts, Term life insurance, Sequential screening.

Coordination and Social Learning

This paper studies the interaction between coordination and social learning in a dynamic regime change game. Social learning provides public information to which players overreact due to the coordination motive. So coordination affects the aggregation of private signals through players' optimal choices. Such endogenous provision of public information results in inefficient herds with positive probability, even though private signals have an unbounded likelihood ratio property. Therefore, social learning is a source of coordination failure. An extension shows that if players could individually learn, inefficient herding disappears, and thus coordination is successful almost surely. This paper also demonstrates that along the same history, the belief convergence differs in different equilibria. Finally, social learning can lead to higher social welfare when the fundamentals are bad.Coordination, social learning, inefficient herding, dynamic global game, common belief