green permits and taxes

[Rosser Jr, John Barkley]

     Just back from the EEA and I read my mail backward.  
So here is a response to Robin H.'s latest.
     I've already said I prefer auctions to handouts.  
Robin challenges us to say when were there auctions (they 
were proposed in Wisconsin, but not carried out).  I'll 
turn it around.  He insists on comparing an "ideal" tax 
system to an actually existing permit system.  But in the 
real world, as I have now already mentioned twice, tax 
systems are generally combined with subsidies to industry.  
Is this fine with you, Robin?
     Another broader question has to do with uncertainty, 
of which there is humongous amounts on all sides on this 
issue.  Robin presents us with the neoclassical textbook 
story about equating social MC and social MB, nice and 
neat, although recognizing that estimating the social costs 
of pollution is difficult.  Indeed.  For that matter, 
governments don't know the costs of cleanup, although the 
private sector does.   If there is a broad band of 
riskiness regarding the social costs, with a threat of a 
sharp upward turn, then one would prefer to fix the 
quantity rather than the price that is controlled in order 
to guard against a catastrophe.  Tradeable permits do that 
and taxes don't.
     Also, although the corpps don't like further quantity 
cutbacks, at least in the US right now there is strong 
public sentiment in favor of that.  There is little-to-no 
public support for any tax increases.  Indeed that is why 
we here probably have a mostly c and c system rather than a 
tax one.  I remind everyone that for global warming a major 
needed tax would be a big hike on gasoline.  But two years 
ago we saw the spectacle of Clinton and Dole competing to 
lower already ridiculously low gasoline taxes.  Forget it.
     BTW, one other argument for taxes not put forward by 
Robin is due to a colleague (Scott Milliman) and a former 
colleague and co-author of mine (Ray Prince) who argued in 
a much-cited JEEM 1989 paper that taxes will lead to more 
innovation in pollution control.  However that result is 
subject to a lot of assumptions that may not hold.  
     Again, I have a feeling that this taxes versus permits 
debate as we have been debating it has a "rearranging deck 
chairs on the Titanic" air about it.  None of this really 
deals with more deeply rooted ecological questions that get 
buried in that nice fuzzy rubric of "measuring social costs 
of pollution"...
Barkley Rosser
- 
Rosser Jr, John Barkley
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