Prices vs. Quantities with Increasing Marginal Benefits
RFF Academic Seminar
Jay Coggins, University of Minnesota
The function describing the benefits to abatement is dual to an underlying dose-response function that relates health outcomes to pollution levels. Recent articles by a few health scientists have found strictly concave dose-response functions for fine particulates. In these articles, the first unit of dose is the most damaging, the last unit of abatement (taking us to zero concentration) the most valuable. The dual benefit function must be strictly convex and so marginal benefits to abatement must be upward sloping. We compare quantity and price instruments in this setting, discovering that identifying the optimal price policy can be surprisingly difficult from a technical perspective. A quantity policy is never strictly preferred to a price policy. The level of uncertainty plays a central role that appears to have escaped notice until now, and the optimal emissions tax is sometimes discontinuous in the level of uncertainty.
Wednesday, July 18, 2012
12:00 - 1:30 p.m.
Lunch will be provided.
1st Floor Conference Room
1616 P St. NW
Washington, D.C. 20036
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