Burden Sharing in Climate Change Policy

Klimaveränderung, Internationale, Umweltpolitik, Welt, Climate change, International environmental policy, World

Environmental Taxation and Revenue for Development

environment, taxation, carbon tax, consumption

Atmospheric Externalities and Environmental Taxation.

The paper reviews the theory of environmental taxation under first best and second best conditions. It argues that negative environmental externalities lead to reductions of the provision of public goods, while investment in abatement increases the supply of public goods. Together with optimal tax rules, the paper therefore also derives conditions for the optimal use of resources on abatement. After brief discussions of the dimensions of time and uncertainty, tax reform and the double dividend, and taxes versus quotas, the optimal tax model is applied to the problem of global warming with a discussion of the particular incentive problems that arise in designing and implementing global climate policy.Environmental taxation; Public goods

Public Provision and Private Incentives

This paper surveys classical and modern arguments for public production and provision of goods. It reviews the conventional case for public production under conditions of increasing returns and discusses the modifications that have to be made if public production involves a cost inefficiency. It then discusses the causes behind a possible cost inefficiency, such as the difficulty of designing good incentive schemes in agencies with multiple and complex objectives. An alternative to designing better incentives in the public sector is that of contracting out to private firms, and the conditions favourable to this alternative are also discussed.

Bridging the Tax-Expenditure Gap: Green Taxes and the Marginal Cost of Funds

The marginal cost of public funds is usually seen as a number greater than one, reflecting the efficiency cost of distortionary taxes. But economic intuition suggests that since green taxes are efficiency-enhancing the MCF with such taxes will be less than one. The paper demonstrates that this intuition is not necessarily true, even when a green tax is the sole source of funds. The analysis also considers the MCF with a proportional income tax, given the presence of green taxes. It compares the optimization approach to the MCF with that of a balanced budget reform and shows that they lead to equivalent results.

Taxation and Tournaments

This paper analyzes the effects of progressive taxes on labour supply and income distribution in the context of the rank-order tournament model originally developed by Lazear and Rosen (1981). We show conditions under which a more progressive tax schedule will cause so large general equilibrium effects that the inequality in disposable income will actually increase. We also show that a non-zero redistributive tax is always optimal if society’s welfare function displays inequality aversion; this result always holds, regardless of behavioral responses and general equilibrium effects.TBA

Adam Smith and modern economics

In his Wealth of Nations (1776) Adam Smith created an agenda for the study of the economy that is reflected in the structure of modern economics. This paper describes Smith’s contributions to four central areas of economic theory: The theory of price formation, the relationship between market outcomes and the public interest, the role of the state in the economy, and the sources of economic growth. In each case, an attempt is made to relate Smith’s contribution to the state of contemporary economics, showing both the similarities and contrasts between the respective approaches

A model of homogeneous input demand under price uncertainty

This paper examines the empirical validity of a model of homogeneous input demand under price uncertainty in which firms trade off expected input cost against its variability (risk) in selecting the optimal input supplier mix. Using recent work in time-series econometrics, this model is applied to the Japanese steam-coal import market, where five suppliers compete: China, the Soviet Union, South Africa, the United States, and Australia. (JEL L10, L72) The purpose of this paper is to derive and examine the empirical validity of a model of homogeneous input demand under price uncertainty. The motivation for this investigation is the common observation that firms simultaneously purchase a homogeneous factor of production from a variety of suppliers each charging a different price. Moreover, there are many instances when the price from one supplier is consistently above that of all other suppliers for an extended period of time yet firms continue to purchase from this supplier. This observation appears to violate the criterion of expected cost minimization for input choice.1 An attempt to explain these anomalies suggests that firms trade off the level of expected input cost against its variability in deciding how to allocate total input demand across available suppliers. By purchasing inputs from a variety of suppliers, the firm is diversifying away some of the price risk associated with satisfying demand from the single least-expected-cost supplier.2 Although the marginal rate of substitution (MRS) between risk and cost is not directly observable, we develop a methodology for empirically estimating this magnitude from a time-series of input purchases. This MRS is an estimate of the firm's risk preferences at the expected cost-risk pair selected. If we assume that this MRS between risk and cost is constant across all expected cost-risk pairs, then an input-price risk premium can be calculated. Subject to this assumption, the input-price risk premium is the percentage above the current * Department of Economics, Stanford University, Stanford, CA 94305, and Department of Economics and Institute for Environmental Studies, University of Illinois, Urbana, IL 61801, respectively. We thank seminar participants at Stanford University, the University of California-Berkeley, the University of Texas, the University of Washington, Purdue University, and the Norwegian School of Economics for comments on earlier drafts. Tom MaCurdy, Randy Mariger, Paul Newbold, Roger Noll, and Agnar Sandmo deserve special mention for their helpful comments. Vivian Hamilton expertly prepared the figures. We especially thank an anonymous referee for thoughtful comments and suggestions on the previous version of the paper. His many contributions are too numerous to mention individually. The final version of this paper was prepared while Wolak was a National Fellow of the Hoover Institution. IFor the sake of simplicity, assume that the price series are independent and identically distributed draws from a multivariate distribution. The null hypothesis of equal means for the prices becomes less likely the greater the number of observations that one price series remains above the others. Clearly, if firms are minimizing expected cost, they would purchase all of this input from the least-expected-price supplier. Hence, in this simple case, the nonzero market share of the consistently high-priced supplier is, with high probability, a violation of the expected-cost-minimization criterion of input choice. 51