The Quasi-Optimal Price of Undepletable Externalities: Comment
Volume: Volume 9, No. 1
Issue: Spring 1978
Pages: pp. 287-291
Authors: T.H. Tietenberg
Title: The Quasi-Optimal Price of Undepletable Externalities: Comment
Abstract: In a recent article in this journal Hamlen (1977) extends the Baumol-Oates result that an emission fee which achieves a given level of an undepletable externality does so at minimum cost to society. He also suggests a procedure for empirically deriving the value of this fee.
The purpose of this short note is to point out that the policy relevance of Hamlen's paper is limited by the specification of his model. The argument proceeds by demonstrating that the nature of the fee he derives is quite sensitive to his model specification, by showing that the formulation chosen by Hamlen is unrealistic, and by summarizing recent empirical evidence which suggests that the magnitude of the error is substantial.
JEL Classification
Welfare Theory Externalities (0244)
Conservation and Pollution (7220)