On the Social Value of Publicly Disclosed Information and Environmental Regulation

Abstract

Abstract This paper presents an analysis of environmental policy in imperfectly competitive market with publicly disclosed and privately-held information about costs. We examine the potential asymmetry-reducing role of disclosure and its impact on setting environmental taxes. From a policy perspective, our findings show that disclosure with verifiable reports, is a valuable public good, provides greater transparency in the market, and is generally efficiency enhancing. Results suggest that access to publicly disclosed information enables the fine-tuning of the tax rules towards specific environmental circumstances and improves the ability of the regulator to levy firm-specific environmental taxes. Further, while we do not attempt to analyze the exchange of information process between players, our findings show that, despite its advantages, exogenously disclosed information can be double-edged sword since it may also produce anticompetitive effects by facilitating collusive behavior. Information sharing between firms may occur and thus lead to a superior outcome in terms of industry output and emissions, which undermines environmental policy performance.