Redistributional Preference in Environmental Policy

The paper deals with distributional issues in environmental economics. It considers a single-good market under perfect competition and a negative externality. The decision-maker uses an emission standard or an emission tax, whose revenue is recycled. Under the assumption that she distinguishes between (the groups of) consumers and producers and favors one group, social welfare is measured by a weighted sum of consumer and producer surplus. The optimal levels of both instruments are derived and compared: They can differ. The interaction between distributional considerations and efficiency is discussed.