TY  - JOUR
AU  - Kaplow,Louis
AU  - Shavell,Steven
TI  - On the Superiority of Corrective Taxes to Quantity Regulation
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 6251
PY  - 1997
Y2  - November 1997
UR  - http://www.nber.org/papers/w6251
L1  - http://www.nber.org/papers/w6251.pdf
N1  - Author contact info:
Louis Kaplow
Harvard University
Hauser 322
Cambridge, MA  02138
Tel: 617/495-4101
Fax: 617/496-4880
E-Mail: meskridge@law.harvard.edu

Steven Shavell
Harvard Law School
1575 Massachusetts Avenue
Hauser Hall 508
Cambridge, MA  02138
Tel: 617/495-3668
Fax: 617/496-2256
E-Mail: shavell@law.harvard.edu
AB  - The traditional view of economists has been that corrective taxes are superior to direct" regulation of harmful externalities when the state's information about control costs is incomplete. " In recent years, however, many economists seem to have adopted the view that either corrective" taxes or quantity regulation could be superior to the other.  One argument for this view with Weitzman (1974), holds only if the state is constrained to use a fixed tax rate (a linear tax" schedule) even when harm is nonlinear.  Corrective taxes are indeed superior to quantity" regulation if -- as seems more plausible -- the state can impose a nonlinear tax equal to the" schedule of harm or can adjust the tax rate upon learning that it diverges from marginal harm. " Another argument, associated with Baumol and Oates (1988), is that quantity regulation gains" appeal when the state is uncertain about the harm caused by an externality.  In this case however, a corrective tax schedule (equal to the expected harm schedule) is superior to quantity" regulation.
ER  -