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A theory of optimal green defaults

[working paper]

Meran, Georg; Schwarze, Reimund

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Corporate Editor Helmholtz-Zentrum für Umweltforschung - UFZ
Abstract This paper develops an analytical framework for studying the Baumol-Oates efficiency of traditional single instrument abatementpolicies vis-à-vis green defaults in the face of price inertia and deliberate defaultingby subpopulations. In this special case ofbehavioural heterogeneity, command and control approaches can outperform price-based instruments while pure tax/subsidy schemes need tobe adjusted in order to achievepolitically desired levels of abatement. We also prove that choice-preserving nudges are superior to any single-instrument policy in this case. An average marginal abatement cost rule is developed to optimise the green defaults and traditional policies of standards and prices under different degrees of market rigidity.
Keywords environmental policy; environment tax; subsidy; regulation; distribution impact; environmental protection; environmental economy; environmental directive
Classification Ecology, Environment; Special areas of Departmental Policy
Document language English
Publication Year 2015
City Leipzig
Page/Pages 16 p.
Series UFZ Discussion Papers, 6/2015
ISSN 1436-140X
Status Published Version
Licence Creative Commons - Attribution-NonCommercial-ShareAlike