what’s the meaning of the 🤔 emoji? i interpret it as “i am skeptical of these findings but won’t say why”. if so, can you say more about what you don’t like about the oil and market power result? seems interesting to me
TLDR, briefly and perhaps too vaguely: an idiosyncratic opinion I have is that the theory of the second best is "too powerful" and can justify too much; we need a theory (of the third best?) on when it is or is not okay to apply.
To expand a bit. The typical logic is:
1. First best: tax externalities & ensure no market power
2. Second best: take as given no tax on externalities, so market power is good actually
But why doesn't the same logic imply:
1. First best: tax externalities & no assassination
2. Second best: take as given no tax on externalities, so occasional assassination of oil executives is good actually
Obviously this is a totally absurd example. But here, clearly IMO no assassination is okay -- even epsilon increase in probability of assassination.
But: what distinguishes the two cases of "bad thing is actually good, because of other distortions in the world"? Something -- but it's hard to be precise about what.
To2B just says "tax externalities taking into account that market power exists". the optimal pigouvian tax is lower with market power. conversely, reducing market power requires a higher optimal tax. so e.g. antitrust increasing competition in airline industry that reduces prices is in tension with emissions reduction targets. general equilibrium To2B is an "anything goes" result, needs to be empirically grounded to have teeth. they estimate market power reduced global temperature by 0.03 degrees, so still need for carbon tax to hit targets
what’s the meaning of the 🤔 emoji? i interpret it as “i am skeptical of these findings but won’t say why”. if so, can you say more about what you don’t like about the oil and market power result? seems interesting to me
TLDR, briefly and perhaps too vaguely: an idiosyncratic opinion I have is that the theory of the second best is "too powerful" and can justify too much; we need a theory (of the third best?) on when it is or is not okay to apply.
To expand a bit. The typical logic is:
1. First best: tax externalities & ensure no market power
2. Second best: take as given no tax on externalities, so market power is good actually
But why doesn't the same logic imply:
1. First best: tax externalities & no assassination
2. Second best: take as given no tax on externalities, so occasional assassination of oil executives is good actually
Obviously this is a totally absurd example. But here, clearly IMO no assassination is okay -- even epsilon increase in probability of assassination.
But: what distinguishes the two cases of "bad thing is actually good, because of other distortions in the world"? Something -- but it's hard to be precise about what.
/steaming hot take
To2B just says "tax externalities taking into account that market power exists". the optimal pigouvian tax is lower with market power. conversely, reducing market power requires a higher optimal tax. so e.g. antitrust increasing competition in airline industry that reduces prices is in tension with emissions reduction targets. general equilibrium To2B is an "anything goes" result, needs to be empirically grounded to have teeth. they estimate market power reduced global temperature by 0.03 degrees, so still need for carbon tax to hit targets