We compare taxes and quotas when firms and the regulator have asymmetric information about abatement costs. Damages are caused by a stock pollutant. Uncertainty enters multiplicatively, i.e. it affects the slope rather than the intercept of abatement costs. We calibrate the model using cost and...

We compare taxes and quotas when firms and the regulator have asymmetric information about abatement costs. Damages are caused by a stock pollutant. Uncertainty enters multiplicatively, i.e. it affects the slope rather than the intercept of abatement costs. We calibrate the model using cost and...

In this essay, it is shown that in the Hoel and Karp (2001) model of global warming, the optimal response of taxes for a stock pollutant with mutiplicative uncertainty is opposite when the control variable is pollution taxes instead of emissions. In this case, the election of control variable...