American Economic Review Vol. 103 No. 3 2013

Leakage, Welfare, and Cost-Effectiveness of Carbon Policy

Kathy Baylis¹; Don Fullerton²; Daniel H. Karney³

¹ Department of Agricultural and Consumer Economics, University of Illinois. · ² Department of Finance, University of Illinois and NBER. · ³ Department of Economics, University of Illinois

Abstract

We extend the model of Fullerton, Karney, and Baylis (2012) to explore cost-effectiveness of unilateral climate policy in the presence of leakage. We ignore the welfare gain from reducing greenhouse gas emissions, and focus on the welfare cost of the emissions tax or permit scheme. Whereas that prior paper solves for changes in emissions quantities and finds that leakage may be negative, we show here that all cases with negative leakage in that model are cases where a unilateral carbon tax results in a welfare loss. With positive leakage, however, a unilateral policy can improve welfare.

DOI

10.1257/aer.103.3.332

Volume

103

Issue

3

Pages

332-337

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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