central america eeu sweden | Policy design

Taxes, Permits, and the Diffusions of a New Technology

The author looks at the effects of the choice between taxes and permits on the pattern of adoption of a new emissions abatement technology. The regulator determines the optimal ex-post amount of emissions before firms start to adopt the technology. Each firm decides when to adopt, considering benefits, costs, and advantage gained over their rivals, producing a sequence of adoption that is “diffused” into the industry over time.

The study shows that when output demand is elastic, auctioned permits induce an earlier diffusion than taxes and thus provide the largest benefit to social welfare.

EfD Authors

Keywords

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Centers

  • central america
  • eeu sweden

Type of publication

  • EfD Discussion paper

Reference

Jessica Coria, 2008, "Taxes, Permits, and the Diffusions of a new Technology", EfD Discussion paper 08-26, a joint publication of the Environment for Development Initiative and Resources for the Future (www.rff.org), Washington DC. October 2008

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