Emission tax on a monopolistic polluter with unknown costs
Emission tax on a monopolistic polluter with unknown costs

Summary/Abstract: Simple emission taxes chosen by a regulator who does not know the precise costs of a regulated monopolistic firm are examined. When the costs of both producing the final products and abating pollution are not known, but are known to be related, the regulator can cause the firm to reveal its costs truthfully by postponing its decision on a tax rate until it has inspected abatement equipment. Depending on the basic parameters, this postponement can increase social welfare.

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