The informational value of environmental taxes

Stefan Ambec et Jessica Coria


We propose informational spillovers as a new rationale for the use of multiple policy instruments to mitigate a single externality. We investigate the design of a pollution standard when the firms’ abatement costs are unknown and emissions are taxed. A firm might abate pollution beyond what is required by the standard by equalizing its marginal abatement costs to the tax rate, thereby revealing information about its abatement cost. We analyze how a regulator can take advantage of this information to design the standard. In a dynamic setting, the regulator relaxes the initial standard in order to induce more information revelation, which would allow her to set a standard closer to the first best in the future. Updating standards, though, generates a ratchet effect since a lowcost firm might strategically hide its cost by abating no more than required by the standard. We characterize the optimal standard and its update across time depending on the firm’s abatement strategy. We illustrate our theoretical results with the case of NOx regulation in Sweden. We find evidence that the firms that pay the NOx tax experience more frequent standard updates and more stringent revisions than those who are exempted.


Pollution; environmental policy; tax; asymmetric information; ratchet effect; multi-governance; policy overlap;

Codes JEL

  • D04: Microeconomic Policy: Formulation • Implementation • Evaluation
  • D21: Firm Behavior: Theory
  • H23: Externalities • Redistributive Effects • Environmental Taxes and Subsidies
  • L51: Economics of Regulation
  • Q48: Government Policy
  • Q58: Government Policy


Stefan Ambec et Jessica Coria, « The informational value of environmental taxes », Journal of Public Economics, vol. 199, n° 104439, juillet 2021.

Publié dans

Journal of Public Economics, vol. 199, n° 104439, juillet 2021