Environment and Development Economics

Table of Contents - August 2012 - Volume 17, Issue 04  

Theory and Applications

Emission taxes when pollution depends on location

Walid Marroucha1 and Bernard Sinclair-Desgagnéa2

a1 School of Business, Lebanese American University, Lebanon; and CIRANO. Email: walid.marrouch@lau.edu.lb

a2 HEC Montréal, 3000 Chemin de la Côte-Sainte-Catherine, Montréal (Québec), Canada H3T 2A7; CIRANO and École Polytechnique de Paris. Email: bsd@hec.ca

Abstract

It is well known that an efficient pollution taxation scheme should charge each source according to its specific marginal contribution to social damages. Despite significant advances in environmental assessment, geographic information systems and data analysis, this requirement would impose technical, informational and administrative expenses that most regulators – notably in developing countries – seem unable to afford. This paper shows that it can actually be less demanding than it seems. If polluters are price-takers, for instance, in a context where the affected population concentrates at a given location, then the optimal emission tax will disregard a source's location. Otherwise, the adjustment of the optimal tax to location will depend on the extent of a polluter's market power.

(Received August 16 2010)

(Revised August 18 2011)

(Revised December 03 2011)

(Accepted February 07 2012)

(Online publication March 09 2012)

Footnotes

The authors are grateful to the editor, Anastasios Xepapadeas, and two anonymous referees for comments and suggestions that significantly helped to clarify the exposition. They also thank Justin Leroux, Alain-Désiré Nimubona and seminar audiences at HEC Montréal and McGill University for valuable suggestions.