Tuesday 11
Environmental Economics
Meglena Jeleva
› 11:30 - 12:00 (30min)
› 406
Environmental regulation in economy with price signalling
Maria Chistyakova  1@  
1 : Laboratoire Montpelliérain d'Économie Théorique et Appliquée  (LAMETA)  -  Website
Centre international de hautes études agronomiques méditerranéennes [CIHEAM], Institut national de la recherche agronomique (INRA) : UR1135, CNRS : UMR5474, Université Montpellier I
34960 Montpellier cedex 2 -  France

The article studies the impact of a price signal of environmental quality on the optimal policy choice of environmental regulation. A monopoly uses price to signal that the production process doesn't generate pollution. In order to prevent the conventional type to post the same price to mislead consumers, the clean type distorts the price relative to the level of complete information. The analysis distinguishes two cases for which the provision of high environmental quality requires extra marginal cost or extra fixed investment. The regulator sets a tax on the pollution. At a certain tax level, the cost of conventional product exceeds that of the green one, the price of the clean variety is distorted downwards. The regulator must consider price distortions due to signalling behavior when he chooses to maximize social welfare. Environmental externality, imperfect competition and information asymmetry suggest that in most cases the optimal regulation should be subsidy to polluting variety.

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