Endogenous preferences and environmental policy

Arbeitspapier

This paper investigates environmental policy in the presence of endogenous preferences. The optimal time trajectory is achieved if and only if the consumer is perfectly time-consistent. The suboptimal trajectories do not only differ from the optimal path during the transition between two equilibria, but also the new stationary states differ. A key difference is more pollution in the suboptimal equilibrium. If the consumer is less than perfectly time-consistent, the standard Pigou tax can be complimented with taxes and subsidies to implement the optimal time trajectory. If this option is unavailable to the regulator, a second-best option is a single tax that is above the Pigouvian level. The results in this paper indicate that the integrated assessment models used by the Intergovernmental Panel on Climate Change (IPCC) to derive optimal emission paths may recommend too high carbon emissions.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Discussion Papers ; No. 964

Classification and Topics

• Classification: Wirtschaft ; Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies ; Fiscal Policies and Behavior of Economic Agents: Household ; Intertemporal Household Choice; Life Cycle Models and Saving ; Climate; Natural Disasters and Their Management; Global Warming
• Subject: Regulation ; Endogenous preferences ; habits

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Storrøsten, Halvor Briseid
• Event: Veröffentlichung
• (who): Statistics Norway, Research Department
• (where): Oslo
• (when): 2021

Further information

• Handle: http://hdl.handle.net/10419/250131
• Last update: 10.03.2025, 11:43 AM CET