Share of Polluting Input as a Sufficient Statistic for Burden Sharing

By investigating the general equilibrium effects with theoretical analysis and computational experiments, we find that the value share of polluting input is a sufficient statistic for the welfare incidence of a quantity-based policy in a competitive economy for short-term and commonly implemented mitigation policy. This result is robust with respect to sectoral, regional disaggregation, and consumer preference. In contrast, with a given pollution tax, the imputed welfare incidence could vary under economies with different production technologies and consumer preferences. The quantity-based policy instrument leads to a more explicit welfare incidence than the price instrument. On this basis, outcome-based criteria used in pollution reduction burden sharing across regions can simply choose the value share of polluting input as a reference base for allocation