Performance of the ambient tax: does the nature of the damage matter?

Abstract

The ambient tax is often considered as an effcient instrument to achieve a …rst best outcome of ambient pollution when the regulator is less informed than the polluters. Since the ambient tax was never imple- mented in the …eld, empirical evidence is missing. Available experimental …ndings provide mixed evidence: effciency is higher under external dam- age, i.e. if ambient pollution affects non-polluters (Spraggon, 2002, 2003) than under internal damage, i.e. if ambient pollution a¤ects polluters themselves (Cochard et al., 2005). Since these two types of experiments relied on very different designs, it is worthwhile to compare them under a common experimental design. Our main …nding is that the ambient tax is equally effcient under external damage than under internal damage.