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Time inconsistent environmental policy and optimal delegation

Mash, Richard, Helm, Dieter and Hepburn, Cameron (2003) Time inconsistent environmental policy and optimal delegation. Department of Economics discussion paper series, 175. Department of Economics, Oxford University, Oxford, UK.

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Abstract

Time consistency problems can arise when environmental taxes are employed to encourage firms to take irreversible abatement decisions. Setting a high carbon tax, for instance, would induce firms to invest in low-carbon technology, yet once investment has occurred the government can then reduce the carbon tax to better achieve other objectives; lower energy prices, redistribution, and electoral success. The resulting time inconsistency discourages firms from investing in the first place. We propose an institutional solution to this problem, adapted from the monetary policy literature; the commitment outcome can be achieved through delegation to an `environmental policymaker`, akin to a conservative central banker.

Item Type: Monograph (Discussion Paper)
Official URL: http://www.economics.ox.ac.uk/index.php/papers/det...
Additional Information: © 2003 The Authors
Library of Congress subject classification: G Geography. Anthropology. Recreation > GE Environmental Sciences
H Social Sciences > HB Economic Theory
Sets: Research centres and groups > Grantham Research Institute on Climate Change and the Environment
Collections > Economists Online
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: 175
Date Deposited: 02 Mar 2011 14:18
URL: http://eprints.lse.ac.uk/33016/

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