Economics Research Institute Study Paper
Utah State University Department of Economics
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This paper provides an answer to the question, are emission taxes an efficient and selfenforcing mechanism to control correlated externality problems? By "correlated externality" we mean multiple pollutants that are jointly produced by a single source but which cause differentiated regional and global externalities. By "self-enforcing" we mean mechanisms that account for the endogeneity that exists between competing jurisdictions in the setting of environmental policy within a federation of regions. We find that, unlike joint domestic and international tradable permit markets, joint emissions taxes are neither efficient nor self-enforcing.
Caplan, Arthur J., "Prices, Quantities, and Correlated Externalities" (2003). Economic Research Institute Study Papers. Paper 266.