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Managing correlated stock externalities: water taxes with a pinch of salt

Published online by Cambridge University Press:  26 February 2010

SOPHIE LEGRAS
SOPHIE LEGRAS*
Affiliation:
Toulouse School of Economics (LERNA/INRA), 21 allée de Brienne, Aile J.J. Laffont, 31000 Toulouse, France. Email: slegras@toulouse.inra.fr
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Abstract

This paper addresses the design of corrective taxation schemes to manage multiple, interacting stocks. In the setting of irrigation-induced salinity, a collective groundwater stock aliments a set of individual rootzone salt stocks. It is shown that the policy maker does not need to base the tax rule on the individual salt stocks. Indeed, taxes based on the level of input and on the collective stock induce the agents to achieve the socially optimal irrigation path. An even simpler instrument is sufficient if the policy-maker's goal is to reach optimality at the steady state only.

Type
Research Article
Information
Environment and Development Economics , Volume 15 , Issue 3 , June 2010 , pp. 275 - 292
Copyright
Copyright © Cambridge University Press 2010

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