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Policy instruments for curbing CO2 emissions Bovenberg, A.L.

Publication date: 1994

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Citation for published version (APA): Bovenberg, A. L. (1994). Policy instruments for curbing CO2 emissions: The case of the . (Reprint series / CentER for Economic Research; Vol. 158). Unknown Publisher.

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Policy Instruments for Curbing C02 Emissions: The Case of The Netherlands

by A. Lans Bovenberg

Reprinted from Environmental and Resource , Vol. 3, 1993

Reprinted with the permission of Kluwer Academic Publishers

I` QS~,r, Reprint Series ,~~eJQ~J~,~r" ~ no. 158 CENTER FOR ECONOMIC RESEARCH

Board Hany Barkema Helmut Bester , Chairman Frank van der Duyn Schouten Jeffrey James

Management Jeffrey James (Director of Graduate Studies) Arie Kapteyn (Scientific Director) Marie-Louise Kemperrnan (Managing Director)

Scientific Council Anton Barten Université Catholique de Louvain Eduard Bomhoff Erasmus University Rotterdam Willem Buiter Yale UnivCrsity Jacques Drèze Université Catholique de Louvain Jack Kleijnen Tilburg University Theo van de Klundert Tilburg University Jean-Jacques Laffont Université des Sciences Sociales de Toulouse Merton Miller University of Chicago Piet Moerland Tilburg University Philippe Naert Nijenrode University Pieter Ruys Tilburg University

Residential Fellows Hans Bloemen CentER Lans Bovenberg CentER, Erasmus University Rotterdam Hans Carlsson Gothenburg University and Lund University Jay Pil Choi Columbia University Jan Magnus CentER, LSE Andrew Mountford CentER Bezalel Peleg Hebn;w University of Jerusalem Mark Steel CentER~Department of , Tilburg University Frank Verboven CentER Oscar Volij Hebrew University of Jerusalem Karl-Erik Wíirneryd Stockholm School of Economics

Address : P.O. Box 90153, 5000 LE Tilburg, The Netherlands Phone : t31 13 663102 Telex : 52426 kub nl Telefax : t31 13 663066 E-mail : center~a kub.nl

ISSN 0924-7874

1994 Policy Instruments for Curbing C02 Emissions: The Case of The Netherlands

by A. Lans Bovenberg

Reprinted from Environmental and Resource Economics, Vol. 3, 1993

Reprinted with the permission of Kluwer Academic Publishers

Reprint Series no. 158 D K.U.B. BIBLIOTHEEK TILBURG Policy Instruments for Curbing C02 Emissions: The Case of The Netherlands 1

A. I,ANS ROVENI3F.RCi ('rnlrrfnr !{rnnonrir Reccarrh, 7ilhnrg tlnirersir}~, P.O. lJnz rX)IS3, SIMJh LL Tilhnq;, Ihc Nrlherlnnr(s, tuu) Resenrrh ('enlrr jor F,'rnnonrir !'nliry, F.rnsrnt7s Universily Rotterdrrnt, P.O. Hnr ! 7.7,~~, tlNM1!)R Koarnlum, thc Nrrlrerlandc

Ahslracl. '(axes may scem to be the mott attractive instrument for curbing lhe emissions of carhon dirixide. This pa~cr, howevcr, argues that environmental taxes involve a numher of scrious complications - cs~ecially in an open ernnomy riddled with market imperfections likc the Nctherlands.'iherefnre, a wide-ranging policy mix is called for. Az far as households and tihcltered scctors are concrrned, regulation can continue to play a major rolc. Within the contexl o( unilatcral ~ilicics aimed at exposed seclors, the rnmbination of subsidies and voluntary agrecmcnts may hc more cost effective than the lax instrument.

Key r~nrdc Finergy rnnservation, environmental taxation, open economies, second best, inlcrnationnl coordination. l. Introduction Energy conservation plays an important rofe in cutting the emissions of CO2. Nevertheless, the distinction between the objectives of, on the one hand, curhing pollution and, un the other hand, conserving energy is important because an improvement in energy efficiency does not necessarily imply a reduction in pollution. Indeed, if the objective is to cut COz emissions, the base of an environmental levy on fossil fuels should be carbon content rather than market value or the energy contenL With this base, a carbon tax encourages the substitution of carbon-poor for carbon-rich fuels. ln fact, fuel subsitution may allow a cut in COz emissions without reducing the overall use of energy.2 This paper assumes that the policy objective is not so much to economize on energy as to reduce pollulion - and in particular to curb Ihe emissions of carbon dioxide (COz) in order to rnntain the greenhouse effccL It analyzes a number of environmental policy instruments pertaining to fossil fuels, mainly in the context of the Dutch economy. Most of the arguments, however, are also relevant for other open economies, such as the other EC members and the Scandinavian countries. On the menu are the following instruments: regulation, subsidies, voluntary agreements with industry, and taxation. At thc moment, most industrial countries, including the Netherlands, rely almost entirely on the first three instruments. More recently, however, policymakers have shown a growing interest in em'ironmental taxation. Some have even gone so far as to arguc

EnrironmeNnl nnd Resourre F.cnnonrics 3: 277-244. 1993. ~ 199i Klrncernrndernir Puhlishcr.c. Printedin Ilre Nrlherlmrds. 2i.t il. Lmtc Knrrnbrr7;

Ihat environmental policy shottld rely entirely nn Ihe lax instrumcnt. '1'hc thcory that taxauon is ahvays ancl everywhere thc hest instrument assumes, however, perfect markets and a closed econ~my. The NetherLrnds is an extremely open economy. Moreover, most economies, including the Dutch one, are riddled with market imperfections. Hence, policymakers confront a case of the second best. This implies that in selecting polícy instruments, they have to resort to a more pragmatic "case-hy-casè' approach. Indeed, sevcral policy instruments can play a role.i A diversificd diet, in other wurds, is advocated. Taxation, as a matter of fact, is part of that diet. Indeed, Section 2 cxplores a numhcr of important advantagcs of the tax instrumcnt. Scction 3, then, discusses a number of problems if a small open economy like thc Netherlands would unilaterally adopt such a tax, especially if that tax would include energy-intensive Grms that are subject to international competition. In this connection, some alternative policy instruments are analyzed in Section 4. Section 5 proceeds by investigating the case of international coordination and explores the conditions under which coordinated taxes could be successful. Section 6 analyzes policies targeted at households and at [irms that are not subject to international competition.

2. Taxation: Thc Advantages Economists rightly put forward a number ot major advantages of taxalion' !n particular, in internalizing the external effects of pollution, taxes leave the private sector free to decide how and when pollution is curbed. Hence, they rely on the knowledge and creativity that is available at the decentralized level. Taxes tend to be cost-effective, also, because they eyualize the marginal costs of cutting pollution across the various polluting sources. This ensures that pollution is cut where it is cheapest to do so. Moreover, a permanent incentive is provided to develop new technologies that are less damaging to the environmenL Hence, taxes are efficient in a dynamic sense. Another advantage ís that taxes discourage entry to the industries that are relatively polluting. Accordingly, they accelerate the desired structural change of the economy in a less environmental-intensive direction. Furthermore, the admin- istrative costs of collecting the environmenlal levies may be relatively small if the exislïng system of tax collection can be relied upon. The final advantage of environmental levies is that the revenues can be used to reduce the adverse effects of these levies on eyuity or international corppetitiveness of selected sectors. This may be especially important for taxes on fossil tuels. The wide tax base, together with a rather low price elasticity, implies that such taxes can yield substantial revenues. In the Netherlands, distortions in the labor market and the low participation rate in the labor force are of major concern. Hence, using lhe revenues from environmental levies to reduce taxes on labor income seems rather attractive. Section 5 returns to this last argument because there are some important caveats here. 1'nlir.~~ lricrrnnrr~ru.c jor Crrrhin,q CO, F.mis'siarr.c 235

3. Unilatcral'~axnliun and F,nc'rC;~-In!cncitc Grposed Scctors

At first sight, taxation seems an attractive instrument indeed. In praclice, however, the Netherlands faces a numher of complications. One fundamental prohlem for a small npen econctmy is Ihat foreign countries may choose not to use taxes and c~frcn pursue a Icsc amhitious environmental policy. To illustrate, this section cxamines the case of the Netherlands unilaterally introducing a carbon ta affecting the encrby-intensive part of industry that is suhject to international competition. These industries will he refered to as the cncrC;v-inlcnsivc cxpnsrcl ~cclcrrs. In ordrr Ir~ ar:rlcrc Ihiti c:r~r, rrmsiclrr:rtirm must hc givcn Irr Ihc following important features of Ihc economic and environmcntal processes invulved: - First, most empirical studies suggest that the price elasticity of energy use is rather low. This suggests that economizing on energy has become rather expensive.s - Second, anci related to the firsl feature, cncrgy taxes tend to imply a high hurclrn for rnerLV-inlcn~ive firms. Ite~ulaticm imposes costs hecause it forcrs inelo~(r'y Ici cul hack Itnllntinn to a cerlain stanclard. Levies, ho~~cvcr, not cinly inducc lirms lo incur cctsls to curh pollution hut also ch:uge firms for lhe pollution Ihal remains after the pollulion has been cut. - ~~hird, the exposcd sectors supply tradeablc commodities that can also be produced abroad. As a result, they experience sliff international competition. - Fourth, the EC does not allow environmenlal levies that are levied on the inputs of producers to be refunded at its internal borders. This implies that the Netherlands cannot refund taxes on the inputs of domestic producers when the final goods are exported. Furthermore, it is not allowed to charge a compensating tax on imports of foreign competitors. - Fifth, the pollution crosses international borders. In fact, the greenhouse effect caused by COZ emissions is global in nature. Acid rain is ako largely an international problcm. In the Netherlands, for example, about thrce quarters of the dcposilions of sulpher-dioxide (SOZ) comes from abroad. "fhe first four of the above-mentioned features imply that unilaleral taxes damage the competitive position of the energy-intensive sectors fi This reduces the net exports of energy-intensive commodities and, lherefore, implies that the production of these commodities is relocated to other countries. Still more production moves abroad when firms cut their domestic investments due to a smaller cash flow and lower expected profitability.' fiow should we evaluate this scenario of trade diversion and production relocation from an environmental point oC view? To begin with, the national emissions of COz decline. However, the production of energy-intensive 2 3li il. L~in.c Rurenh~~R goods continucs, alheit acrc~ss Ihe hcircler. Acccirdingly, it is unclear whelher glohal cmissions will fall - which is what ultimatcly counls. In fact, glohal emissions may even rise if foreign producers are less energy efficient or if these producers rely more on carbon-rich fuels, such as coal or oil. This illustrates that national emissions of COZ are not always a good yardstick [or the environmental impact of particular policies. If a given target for national emissions is achieved without reducing the net exports of energy- intensive commodities, the global environment is much better off than if the same target is achieved by cutting these exports and shifting production abroad. Accordingly, simulations with models of one parlicular region should provide information not only on regional emissions but also on net exporls of energy-intensive commodities - and this in order to better judge the ~ environmental effects. In a cost-benefit analysis of unilateral policies, careful examination oP not only the environmental benefits but also the costs should be made. In this connection, unilateral taxes distort international trade and factor flows. Furthermore, the Netherlands faces serious adjustment problems. In par- ticular, the country loses part of its energy-intensive industry, including the capital, expertise and technology that have been built up through years of Icarning hy doing. Thcse industries exert positive externalitics on lhe resl of the economy as well. For example, they constitute an irnportant part of the economic base for the large collective sector in the Netherlands. Moreover, a major part of the Dutch econotny, including part of the sheltered service sector, is dependent on a symbiotic relationship with the energy-intensive industries. It is yucstionable whether other, energy-extensive, economic activities will be able to replace the loss of high-quality employment, high valuc-added activities, expertise, exports, and economic base of the collective sector - even in thc medium run. The adjustment issue may be particularly serious in the Netherlands because of a certain lack of Ilexibility of the Dutch economy." This is due, in part, to the extensive welfare state and its associated market rigidities and distortions. lndeed, there is a real dangcr that the Dulch economy might turn into a downward spiral if adjustment problems would impair the base of the collective sector 9 To conclude then, unilateral laxes that bear on energy-inlensivic exposcd sectors are unattractive. They impose high costs but yield only small or even perverse environmental effects from a global point of veiw. The fundamental cause for this failure is a foreign distortion, namely the fact that environ- mental costs are not internalized abroad. Accordingly, the Netherlands is confronted with a classical case of the second best. According to the theory of the second best, a reduction of one distortion does not necessarily improve overall welfare as long as other distortions remain. Unilateral taxes are helpful in alleviating one distortion, namely the gap between social and private costs of ctomestic energy use. At the same time, hciwever, the foreign Pulir.v lr~cn~inirm.c fnr ('urhir~l; ('U, limi.c.ciuns z3~ distortions remain. In fact, unilateral taxcs raise the welfare costs of foreign distortions by shifting the production of energy-intensive goods abroad. Overall, global welfare may be harmed if the foreign distortion exceeds the domestic distortion, while the location of production is rather sensitive to cost differentials."'

4. Unilatcral Policics AimcJ al Exposed Scctors: Olhcr Inslrumcnls 1~his section examines aiternative instruments in the context o( unilatcral policics aimed at energy-intensive exposed sectors, starting with regulation. At first sight, regulation may cause less damage to the competitive position of the energy-intensive sectors because, in contrast to levies, regulation does not charge for the pollution that remains over and above a cerlain norm. However, regulation is beset with a number of major disadvantages. Most importantly, it tends to provide less flexihility to the private sector in deciding how and when to curb pollution. This is especially serious for encrgy-intensive firms because they typically use complex processes. More- over, the costs of curbing pollution tend to vary substantially across the various polluting sources. It is next to impossible to attune regulation to these differences. Furthermore, regulation lends to protect existing firms, as it acts as a barrier to entry. In this way, it may inhibit the (ree functioning of markets as well as technological change. Finally, regulation may be difficult to enforce. As far as unilateral policies are concerned, subsidies, in combination with agreements with industry, may be the most promising instrument. Such a policy package imposes less distortions in international trade- and factor flows. In addition, it actually contributes to curbing global emissions. To wit, it not only encourages domestic producers to shift to a cleaner production process, but also keeps up net exports of energy-intensive commodities.. Furthermore, the adjustment problems facing the Dutch economy are less severe under subsidies. The reason is that the costs are sprcad out over the entire economy. 1'he collective financing also, however, points to a major disadvantage of subsidies. lnstead of the pollutor, the rest of the economy pays - namely, through the distortionary taxes thal are required to finance ihe subsidies. "fhe marginal efficiency costs of additional taxation tend to be espccially high in cotmtrics with high tax bw~dens, such as the Nelherlands. Subsidies suffer from other drawbacks as well. To illustrate, subsidies for selected technologies may give an artificial advantage to particular ways to conserve energy over other, perhaps more efficient, ways. Furthermore, trading partners may perceive subsidies as unfair competition. Indeed, sub- sidies may give rise to an international `subsidy war.' Moreover, they may expand the government bureaucracy. If subsidies are not accompanied by regulations or agreements that raise costs, they may actually encourage firms to enter the polluting sectors and distort the international allocation of 2 3;l it. l.mcc Ilorrv~h~rt

cncrgy-inlcn.tivc firms Iw :rtlracling cncrf!y-intcnsivc fïrms from countries with stiffer rules and Iess generous suhsiclics. Overall, suhsidics are "second- hest" instruments in case international coordination is n~t forthcoming. There seems litlle scope for unilateral policies aimed at exposed sectors. Thc fundamental cause is lhe international mobility of not only pollution, but also commodities and capital.

5. Intcnialional Coordinalion Intcrnational coordin:rli~n is thcrefore prcferahlc to miilateral policics, cspc- cially if lhey concern exposed sectors. "1'his scction examines the case of international coordination more closely. With coordination, taxes are more attractive than without coordination because taxes shiR energy-intensive production abroad only if foreign production causes less pollution. Never- theless, even if coordination is forthcoming, some conditions have to be met in order for the tax instrument to he truly successful. ~irst, the market imperfections that impede the allocativic effects of taxes shocdd be eliminated as much as possible. Indeed, supplementary measures are often required to ensure that taxes actually affect behavior. Supplying infonnation, for example, may raise the elasticities that determine lhe behavioral impact. A second condition for the success of the market-oriented instrument of taxation is an efficient and (lexihle functioning of the economy and markets. More generally, a well-(unctioning market mechanism is a powerful instrument to efficiently allocate scarce environmental resources and to efficiently deal with the adverse supply shock of a higher price for environmental capital. Indeed, the Ministry of the Gnvironment and the Ministry of Gconomic Affairs should be close allies in striving to improve the tunctioning of markets. To the extent that they are less successful in accomplishing this, they face the danger that an ambitious environmental policy would give rise to serious adjustment problems. This would most likely erode both the economic and political support for strict environmental policies. In the context of lhe Dutch economy, an important priority in this respect should be the reduction of the high burden o[ taxes and social security premiums. In the Netherlands, lhis burden is called the collective burden. A reduction of this burden would amount to an important investment in lhe functioning of the domestic economy. Accordingly, the revenues from envi- ronmental taxes should be used to reduce taxes that distort markets. The government may have to go further, in fact, and cut public spencfing in order to reduce the rnerall (measured) collective hurden by cutting public spending. This is especially so if environmental levies yield large environ- mental henefits by producing large behavioral effects. The reasoning is as tollows." If the government wants to maintain its total tax revenue, it will not be able to compensale the costs private agents incur in curhing pollution. Poliry hevrumr~ntr jrrr ('urbin,~ ( Y)~ lani.xcinnc 2~9

Hence, the "hiclden" collective hurclen rises as envimnmental taxes explicitly aim at changing private hchavior for Ihe puhlic gciod nf a cleaner environmenl. M an open economy in which capital is rather mohile internationally, most of the costs of a cleaner environmcnt will hc horne by labor in the fonn cif Iower real wages. This reduces Ihe incentive t~ supplv lahor, therchy reduc- ing employmenL Without lahor market distortions, the highcr "hiddcn" cnllcctive hurdcn and fall in cmpluymcnt asccicialcd with Ihis applicalion cif thc pollutor-pays principlc would unambiguously impmve wclLrrc. I lciwcvcr, in a clistorted economy, employment may hc suhoptimal. In lhal case, cnvironmcntal laxcs Icnd lcr wurscn lahcir m:rrkct clistcirlions hy rcducing employment - especially if one aims at protecting Ihe Icnvcst incomes.'' Indeed, a higher priorily for the collective good ~f the environment makes the task of pruning the welfare state and lowerir.g the overall collective burden more, rather than less, urgent. The p~litical pressure to cut spending and reform the labor markct, however, may well decline because il is politically less costlv to increase taxes on a hacl thing like polluti~n than to raisc taxcs that directly hcar on labor. To summarize, pollution taxes yield a douhlc ciividend, namclv a cleancr envirnnment and a more efficient labor markct, only under stringent conditiuns." Intuitively, if one aims at tw~ objcctives, one needs at least two instruments. One is a different tax mix with a larger role for environmental taxes. The second instrument is a lower collective hurcten. In Ihis conncclion, the Netherlands should avoid the mistakes it madc in the seventies when the actions of OPGC allowed the Dutch government to impose a weighty implicit energy lax. In particular, the windfalls from the higher revenucs from natural gas were appropriated by the government and used to expand the welfare state rather than to reduce taxes and social security premiums. This contributed to what has become known as the "Dutch discase."'~ Another condition for a successful implementation of taxes in the Nether- lancls is that Ihe eciuntry elevelop new strong comparative advantages and expertise. ~~his is hccause the Dutch economy, at the moment, relics rathcr heavily on energy-intensive firms as the basis for its exports and its collectivc scctor. Purthcrmore, intcniational coordination must be enforced. In fact, this is an unclcr-rated issuc hecause lhc wcirld faces a rather serious free-ridcr pmhlem. No individual country, on its own, has a strong íncentive }o actually collect the tax. It w~uld he very difficult to check whether sovereign nalions inclecd rharge high tares to thc cxposcd sectors that provide major henefils to their countries. Another problem is that the quality of tax administrations and the possihilities for tax evasion differ suhstantially across countries.~ 5 In Ihis connection, it is worth noting that energy market~ bclong to the most regulatect markets.~h Therefore, the allocative effects of the tax instru- ment in any particular country should be judged in conjunction with othcr ?al) A. Lmts Rovcrrhrrg interventions in cnergy markets, such as regulation, subsidies, and other taxes on fossíl fuels. ln parlicular, countries should not use thcse inlerventions to offset the allocativic effects of the coordinated levy. In fact, an important first step towards a cleaner environment is to ab~lish the interventions Uiat encourage rather than discourage pollution, such as subsidies for coal mining ancl low VAT and excises on energy. To summarize, taxes can, in principle, play a major role within the liamcwork of an intcrnationally coordinatcd policy. llowevcr, somc complc- mentary mcasures are ncedcd to address some complications. Furthennorc, there remains a role (or olhcr environmental-policy instruments, such as subsidies that are aimed at specific market imperfections. To illustrate, thc collective, non-rival, character of knowledge may call for subsidies for research and development of new technologies, which are essential to cut pollution. However, one should be careful in using subsidies. In particular, one must consider not only market imperfections but also government failures that are associated with bureaucracy, financing costs, and a lack of information.

6. ! Iouseholds and Sheltcred Sectors As far as firms thal are not exposed lo intcrnational competition (lhe "sheltered" sectors) and households are concerned, the international reloca- tion of production is Icss of a threal. Is the tax instrumcnt here the main dish - even if international coordination is not possible? In order to judge lhis, this section first examines a few complications of unilateral taxes - starting with some international aspects. T'he Netherlands is txiund by EC agrcements on indirect taxation. Even if unilateral taxes are formally allowed, coordination may still be required. ~~his is in order to prevent widesprcad cross-border shopping in an internal market without any border controls. Indeed, in the Nctherlands about 30 percent of the population lives within 30 km of the border. ln Europe as a whole, this figure is only 15 percent. In the internal markcl, individuals are allowed to acquire fossil fucls directly from foreign distributors without paying Dutch indirect taxcs. This cross-border shopping may involve not only gasoline (peh.ol) but also other fuels (such as I.PG, hcating oil). More- over, if price differenccs are subslantial, firms will also be temptcd to huy some of their energy supplies across the border. Tax authorities may be ahle to prevent this tax evasion only by employing a large bureáucracy and at great costs lo corporations and free trade alike. Inctced, a small ol~en ec~nomy like the Nethcrlands will most likely be [orced to exempt ener};y sources that can be easily transported across borders. These relalively cheap sources will then spread like an oil slick over the economy. The reason is that the relatively cheap fuels will be substituted for the energy sources that are taxed relatively heavily. I'nlirt~ Irreounu~ncc fnr ('urhin,e ( (~, lirrric.ciorts 241

Annthrr complicatic,n of a tax on thc sheltercd sector is that, in practice, it will hc difficult to clistinguish the sheltered from the exposed sector. This di~tinction, in ;act, may make the tax structure complex, result in tax evasion, anci in,pose high aclministrative costs on firms. Furthermore, it may be difcicult to separately identify the COZ emissions embodied in electricity generated for the shcltered and exposed sectors. Moreover, the tax discrimi- nation against the shcltereci sector may cause serious distortions within the domestic economy. For exampl~, a regressive lariff structure aimed at protecting large energy-intensive industries may act as a barrier to entry and hann young dynamic firms. Mcire generally, the protection of existing firms hampers competition and may well clamage the Ilexihility of the economy. Another important issue regarcling the household and sheltered sectors concerns the existence of several major market imperfections." Rent regula- tions, for example, may prevent landlords from retrieving from their renters the costs of energy-conservatir,n measures. Other market imperfections involve high transaction costs, separation of bene(its from costs (the so-called "tenant-landlord" problem), a lack of information, imperfect capital- ancl insurance markets, and a short time horizon. Furthermore, governments tend to regulate the fuel mix for generating clectric power. lndeed, the key decisions affecting fuel choice lie with the government rather than with households. In the sheltered sectors, market and competitive mechanisms are often quite weak because these sectors are protected from foreign competition. Moreover, the public sector constitutes an important part of the sheltered sector. Here, political and hureaucratic f~rces rather than economic pressures may he dominant. Time horizons, for instance, may be quite short clue tcr cash-Ilow constraints and short-term budgeling. In some cases, the hest soiution is simply to alleviate market imperfections in thc household anci sheltered sectors, for example by reducing iransaction costs, removing rent regulations, improving the functioning of capital markets, etc. However, this may not ahvays be possible - especially not in the short- ar medium-run. In that case, environmental policy has to take these imper- fections into accounL The major point here is that market imperfections tend to limit the allocative and behavioral effects of taxes so that taxes tend to act largely as an ordinary revenuc measure with only very small effects on thc composition of consumption and, thus, on the environment.~" In order to substantially reduce pollution, therefore, one has to resort to altcrnative instruments. In particular, regulation is generally a ráther attrac- tive instrument to affect household behavior. The reason is that households typically use rather simple and uniform processes. Hence, the government pcissesses enough information to regulate these processes rather efficiently. It may usc huilding regulations, for example, to set standards for home insula- tion. l~he governntent may also set standards for electric appliances, lighting, anci hoilcrs. However, international coordination may be required i( it 242 il. Lnrr~ Rarrnlrri.~ cuncerns tracled amuncidities. Furthermore, one shcruld ensure Ihal rc:~ula- lirn) does not foster market rigiclities. In most cases, suhsidies for househnlds seem to he rather less attra:tive. Thcse suhsidics typically require a suhstantial effcrrt on Ihc hart ctf Ihe governrnent in view ~f the large number of households. Moreover, onlv Ihc well-informecl households may he reached, those which might h;rve aln~auy cunc~d hollulicm cvrn if thc suhsidy wrwld not havc hccn rnrviclccl (Ih~- stt- callecl "Matheus-effect"). f~urlhermore, the colleclive financing of suhsidies rnay damage the comhetitive position of exhosed sectors.

7. Conclusions At first sight, taxes may seem hy far the most attraclive instrument for cutting )iollution. Howevcr, a closer look reveals that taxes involve a numher of m~jnr complications - esrecially in an o~en economy riddled with market imperfections. In ~ractice, therefore, a wide-ranging policy mix is called for. Indeed, a diversified diet is most healthy. The main dish depends on the srecific situation. Taxes can be a major component of an internationally coorclinated policy. H~wever, if coordination is not forthcoming, the com- hination of suhsidics and agreements with industry would secm to he thc main dish - at Icast if the policy is aimed at exposed sectors that are energy intensive. As far as households and sheltered sectors are concerned, regula- lion can ccmtinuc to hlay a m~jor role. A final conclusion is that entrécs that are c~ordinatecl internationally taste a lot better than dishes that are servecl in an uncoordinated fashit7n.

Notes r l hic rarer wa~ Prcrarecl fcir a conference on "Fnergy l'axalian in Gurope" cxganizecl by thc Stichting vorir Ecrinumisch Ondcrzuek (S60) and helcl on Dcccmber I 3, 1991 in Amsterelam, the Netherlancls. The aulhor w~wld like to Ihank Sijbren Cnossen, Jarig van Sinderen and one anunymous referec frrn c~lhful commenls on an earlicr ctrafl. z In Ihe Netherlanclx, however, a cliffcrent fucl mix cloes not offer much scope for rcducing CO: cmissinns, as this coumry alrcaJy rclics mnslly on natural gas, which is rclatively clcan. For Ihc di.ctinctiim hclwccn cncrgy taxcs ancl c:trbon laxcs, sce Cnosscn ancl Vollchcrgh (1991). ' ticc, fiir exany.le, lie~hm anct Russell ( 19Ri), ' Sec, for cxample, 13aumnl anel O:des ( I 9HH) and Pearce and l'urner (1990). ` In the long run, thc pricc elasticity is likcly to be highcr, especially if changct in encrgy priccs are cxpected to lait. One uf Ihc major rcasons is thal the anlicipalion of high encrgy priccs will affcct thc clircctirm ancl srecd nf tcchmdogical change. " Ry u.~ing the rcvcnucs fmm Ihe tases ar reduce rithcr laxcs, Ihc govcrnmenl may be ahle to alleviate a small part of Ihe advertie cffect~ of the higher energy levics ~m the c~impctitive p~isition of the energy-intensive scdiirs. I lnwever, lower laxes on capital nr lahor will n~it hc aMc tn fully compensale the energy-intensive sectrirs in vicw of their cncrgy inlensity, which is much higher than that nf the rest of the economy. ' In Ihe contcxt rif Ihe Unitcd Kingd~im. Prccman (19'71) invcsligalcs thc cffects rif a uni- I'nlirv In.crrnnrrnl.r jur ('urhirr,~ ('O. P,mic.cinrri 243 latrral c;uhcrn lax i,n Ihc crnnpclilivc Prsitirm nl cncrgy-intcnsivc m:tnul'acturing. Purthcrnu,rc, I lcnhcr~ and Minnc ( I y'12) cs:uninc hc,w n SII r,r 1011 (,Crccnl lax cm Ihc cnst of cncrLy Ievicd in either thc wh„le Ufi('I) rrt in Ihe Nclherland.c r,nlv would affect thc Irrcation of cnrr~y-imcnsivc fr,rmc. lhc cslim:dcs (nr lhc Irsscs in emplr,yn,cnL c,utput, and cxpc,rls wcrc uscd as an inPut in a multi-sccu,r mrtdcl c,f thc Ncthcrlandz. Fnr Ihc macn,-cconomic and seclc,ral clfccts of these taxes fc,r the I)utch economy, sec Centraal Planhurcau (1992). " Fc,r a dcscril,tion nf thc salicnt features of the fhdch economy in gencral and Ihc rigiditics and inflcxihílitics, in parlicular, scc, c.g., OfiC'D (19K9), t71?CI) (199t1), and rnrnPean Cnmmissir,n ( I'7911). " Markct rigiclilics, Ihc wclfare slate, and cxlcmal cffcctt duc to Ir.vning hy duing arc typically lacking in Ihe models Ihat ecrntomists use to advocale taxes as thc hest Policy insfrumcnl. "' In facl, thc Oli('D cuncludcd in a reccnl cutnttry rcporl on thc Nethcrlands:"'(iu-it-alonc' I,olicics in the domain of COi emission are exlrcmcly costly and largcly ineffective" (scc c)F.c'1) (1 vvu), P. r,7). " F'or a more clahorate cxplanation, sce Br,venhcrg and Cnossen ( I 991) and Flnvenberg and de Mc,oij (1992). For the design nf emirunmental policy in a second-best world, see alsu Raumol anJ Schwab ( I 9RR) and Sandmo ( I 97S). '- Scc, frrr examplc, (iouldcr ( I 991). " l'hese cnnditions include, first, small hehavinral e(fects and, therefore, smatl environmental effects and second, a sacrifice in terms of incame equalily, namely a reductinn in Ihe real purchasing power of low incomes. For thic lalter cnndition, see also Pcarson and Smilh (Ir)~)I) ~' Nalural gas revenue~ continue lo play an imporlant rolc in the Dulch budget. Hencc, the conscyuences of coordinalion taxes for Ihe price of fossil fuels on world markets are in,pr,r- tant indced. In Ihis conneclion, Ihe response of the OPC-C-cartcl is crucial. " Annthcr majc,r prohlcmatic issuc in Ihis respccl is thc inclusion ol thc LDCs in an intcr- natinnal agrccmcnt. I:nfurcing taxes in Ihcse counlrics is likcly to bc very difficult. "' f Iclm (1991) surveys scvcral imPortanl market imlxrfections in energy-marketx. ~' Scc alco .lackcon and .Iacc,bs ( I d'11 ). '" Fc,r Ihe relatir,nshil, between markel iml,crfections and Ihe price elasticity of energv nse, scc Jackson anci Jacohs t 1991). They stress Ihe importance n( policy measures aimcd al improving the efficicncy of Ihc markct.

Reterences f3aumol, W. f:. and W. Oatcx ( I 9RR). Tlte 77leury oj F.nvimrrmrnad !'uliry, Cambridge Univcrsily Press, Cambridge. MA, USA. Raumol. W. F. and R. M. Schwah (19RR), 'fconomic Competition Among .lurisdiclic,ns: Ffficicncy f:nhancing or I)istorlinn Inducing?', Jnunm! rrj!'ublic Fronnmicr 35, ,l~l- tS4, liuhm, P. and C. S. Russell (19RS), 'Comharalive Analysis of Alternative Policy Instruments', in A. V. Kneese and J. L. Swceney (cds.), flandhook oj Narural Resneucr anrl F.ncr~v I:carrrnnicr, vol. 1, North Holland, Amslcrdam. f3ovenhcrg, A. L. and S. Cnosscn (1991), 'Fiscaal Fata Morg:tna', Ecannrnlsch .Slari.rlirrhP Rcrirhlcrr 76, 12Q(1-12(13. 13ovcnhcrg, A. L. and R. A. dc Mooij (1992), 'Environmental Taxatiun and Labor-Markct Distortions'. Mimca, Research Centre tc,r Economic Policy, Erasmus Univcrsily, Rotterdam, the Netherlands. Centraal Planhurcau (1992), `Gconrnnische Gcvedgen op Lange Termijn van Heffingen ap Lnergic', Working 1'apcr No. 4.7, Dcn Haag. 2d~1 it. l.n,rc Ir,mcnl,~rl;

Cnosscn, S. and 1 i. R. .I. Vollchcrgh ( I'~y I). '"1'owards a(~loh:d [xci~c un Carbon', Papcr prepared for the 47ih conFress o( Ihe International Instilwc of Puhlic Finance, Leninl,rad. Commission of the Furopean Commrmities (199(1), 'Country Studics: The Nctherlands', Economic Papcrs No. R I. Freeman, R. (1991), Tnvironmental Costs and International Competitiveness', in T. 13aker (ed.), Green Funrres jnr Ecnrrnmic Grmrlh, Camhridge Economctrics. Cambridgc, UK. Goulder, L. H. ( I 991), Fjjectc ojCnrAnn 7àset in an Econnnry Wi!!r Prinr Tas Dislorrinns: An InlrrlrnqrOral C:cncrnf f~:quilihriunr il nnlyci.c fm rhr U..S., Mimco. Stan(ord Univcrsíty. Helm, D. (1991), "Ihe l~ssexsment: Gnergy 1'olicy', Usjnrd nevirw nj licnnnmic I'oliry 7(2), I-16. Hen.her~, V. and R. Mimie (1992),'Ncderlandse Induslric en Regulerende Encrgichcffing', Re~carch Memorandum No. 911, Ccntraal I'lanhurcau, Den Haag. Jackson, T, and M. Jacobs (1991). 'Carbon Taxes and Ihe Assumptions of Environmental fconomics', in l'. Baker (ed.), Green Funrres jnr Ecnnonric Grnwlh, Cambridge Emno- melrics. Camhridge. UK. Organisation (or F.conomic Co-operation and Development (19R9), OLCD Econonric Srerveys - 7he NelherlnnAs, , France. Organisation (or Fmnr,mic Co-operation and Development (1990), OECD Ecomm~ic Survey.t - 77re A'edred~urds, Paris, France. Peercr. D. W. and R. K. Turner (1990), Ecnnnmics oj Nnrtrrnl Resoroces and rhe Environ- nrrnr, The Johns Hopkins University Press, Baltimore, MD. Pearson. M. and S. Smilh (1991), The Erunpenn Carbnn 7ns: iln Assessmenr oj!!~e Enropean Conrmi.c.cion :r 1'ropn.cnla, The Inslitute of Fiscal Studies, L.ondon. Sandmo. A. (197i), ~pptimal Taxation in the Presence o( Externalities', Srverlish lnurna! nj E,nnnntirs 77, 86-9R. Reprint Serics, CentER, Tilburg University, The Nethcrlands:

No. I G. Marini and F. van der Ploeg, Monetary and fiscal policy in an optimising model with capital accumulation and finite lives, The Economic Journal, vol. 98, no. 392, 1988, PP. 772 - 786.

No. 2 F, van der Ploeg, International policy coordination in interdependent monetary economies, Jourrtal of Inrernational Economics, vol. 25, 1988, pp. 1- 23.

No. 3 A.P. Barten, The history of Dutch macrceconomic modelling (1936-1986), in W. Driehuis, M.M.G. Fase and H. den Hartog (eds.), Clwllenges for Macroeconomic Modefling, Contributions to Economic Analysis 178, Amsterdam: North-Holland, 1988, PP. 39 - 88.

No. 4 F. van der Ploeg, Disposable income, unemployment, inflation and state spending in a dynamic political-economic model, Public Choice, vol. 60, 1989, pp. 21 l- 239.

No. 5 Th. ten Raa and F. van der Ploeg, A statistical approach to the problem of negatives in input-output analysis, Economic Modelling, vol. 6, no. 1, 1989, pp. 2- 19.

No. 6 E. van Damme, Renegotiation-proof equilibria in repeated prisoners' dilemma, Journal ojEconomic Theory, vol. 47, no. 1, 1989, pp. 206 - 217.

No. 7 C. Mulder and F. van der Ploeg, Trade unions, investment and employment in a small open economy: a Dutch perspective, in J. Muysken and C. de Neubourg (eds.), Unemp[oyment in Europe, London: The Macmillan Press Ltd, I989, pp. 200 - 229.

No. 8 Th. van de Klundert and F. van der Ploeg, Wage rigidity and capital mobility in an optimizing model of a small open economy, De , vol. 137, nr. 1, 1989, pp. 47 - 75.

No. 9 G. Dhaene and A.P. Barten, When it all began: the 1936 Tinbergen model revisited, Econonric Modelling, vol. 6, no. 2, 1989, pp. 203 - 219. -

No. 10 F. van der Ploeg and A.l. de Zeeuw, Contlict over arms accumulation in market and command economies, in F. van der Ploeg and A.J. de Zeeuw (eds.), Dynamic Policy Cames in Economics, Contributions to Economic Analysis 181, Amster- dam: Elsevier Science Publishers B.V. (North-Holland), 1989, pp. 91 - 119.

No. 11 1. Driffill, Macrceconomic policy games with incomplete information: some extensions, in F. van der Plceg and A.l. de Zeeuw (eds.), Dynamic Policy Games in Economics, Contributions to Economic Analysis 181, Amsterdam: Elsevier Science Publishers B.V. (Nortlt-Holland), 1989, pp. 289 - 322.

No. 12 F. van der Ploeg, Towards monetary integration in Europe, in P. De Grauwe et al., De Europese Monetaire Integratie: vier visies, Wetenschappelijke Raad voor het Regeringsbeleid V 66, 's-Gravenhage: SDU uitgeverij, 1989, pp. 8t - 106. No. 13 R.J.M. Alessie and A. Kapteyn, Consumption, savings and demography, in A. Wenig, K. F. Zimmermann (eds. ), Demographic Change and Economic Development, Berlirt~Heidelberg: Springer-Verlag, 1989, pp. 272 - 305.

No. 14 A. lloque, J.R. Magnus and B. Pesaran, The exact multi-period mean-square forecast error for the first-order autoregressive model, Jounral of Ecnnometrics, vol. 39, no. 3, t988, pp. 327 - 346.

No. IS R. Alessie, A. Kapteyn and B. Melenberg, The effects of liquidity constraints on consumption: estimation from household panel data, European Economic Review, vol. 33, no. 213, 1989, pp. 547 - 555.

No. 16 A. Holly and J.R. Magnus, A note on instrumental variables and maximum likeli- hood estimation procedures, Annales d'Économie et de Statistique, no. I0, April-June, 1988, pp. 121 - 138.

No. 17 P. ten fiacken, A. Kapteyn and 1. Woittiez, Unemployment benefits and the labor market, a microlmacro approach, in B.A. Gustafsson and N. Anders Klevmarken (eds.), 7Tte PaliticalEconotny of Social Security, Contributions to Economic Analysis 179, Amsterdam: Elsevier Science Publishers B.V. (North-Holland), 1989, pp. 143 - 164.

No. 18 T. Wansbeek and A. Kapteyn, Estimation of the error-components tnodel with incomplete panels, Journalof Econometrics, vol. 41, no. 3, 1989, pp. 341 - 361.

No. 19 A. Kapteyn, P. Kooreman and R. Willemse, Some methodological issues in tlte implementation of subjective poverty definitions, The Journaloj Human Resorvices, vol. 23, no. 2, 1988, PP. 222 - 242.

No. 20 Th. van de Klundert and F. van der Plceg, Fiscal policy and finite lives in interdependent economies with real and nominal wage rigidity, Oxf'ord Ecortontic Papers, vol. 41, no. 3, 1989, pp. 459 - 489.

No. 21 J.R. Magnus and B. Pesaran, The exact multi-period mean.square forecast error for the first-order autoregressive model with an intercept, Journal ojEconometrics, vol. 42, no. 2, 1989, pp. 157 - 179.

No. 22 F. van der Ploeg, Two essays on political economy: (i) The political economy of overvaluation, TJte Economic Journal, vol. 99, no. 397, 1989, pp. 850 - 855; (ii) Election outcomes and the stockmarket, European Journal of Political Economy, vol. 5, no. 1, 1989, Pp. 2l - 30.

No. 23 l.R. Magnus and A.D. Woodland, On the maximum likelihood estimation of multivariate regression models containing serially correlated error components, Interttational Economic Review, vol. 29, no. 4, 1988, pp. 707 - 725.

No. 24 A.1.J. Talman and Y. Yamamoto, A simplicial algorithm for stationary point problems on polytopes, Mathematics of Operatians Research, vol. 14, no. 3, 1989, pp. 383 - 399.

No. 25 E. van Damme, Stable equilibria and forward induction, Journal ojEconomic 77:eory, vol. 48, no. 2, 1989, pp. 476 - 496. No. 26 A.P. Barten and L.1. Bettendorf, Price formation of fish: An application of an inverse demand system, European Economic Review, vol. 33, no. 8, 1989, pp. 1509 - 1525.

No. 27 G. Noldeke and E. van Damme, Signalling in a dynamic labour market, Review oj Economic Studies, vol. 57 ( I), no. 189, 1990, pp. l- 23.

No. 28 P. Kop lansen and Th. ten Raa, The choice of model in the construction of input-output ccefficients matrices, International Economic Review, vol. 31, no. 1, 1990, PP. 213 - 227.

No. 29 F. van der Ploeg and A.J. de Zeeuw, Perfect equilibrium in a model of competitive arnvs accumulation, International Economic Review, vol. 31, no. 1, 1990, pp. 131 - 146.

No. 30 J.R. Magnus and A.D. Woodland, Sepatabilityand aggregation, Economica, vol. 57, no. 226, ! 990, pp. 239 - 247.

No. 31 F. van der Plceg, International interdependence and policy coordination in economies with real and nominal wage rigidity, Greek Economic Review, vol. 10, no. 1, June 1988, PP. 1 - 48.

No. 32 E. van Damme, Signaling and forward induction in a market entry context, Operatians Research Proceedings 1989, Berlin-Heidelberg: Springer-Verlag, 1990, pp. 45 - 59.

No. 33 A.P. Barten, Toward a levels version of the Rotterdam and related demand systems, Contributions to Operations Research and Economics, Cambridge: MIT Press, 1989, pp. 441 - 465.

No. 34 F. van der Ploeg, International coordination of monetary policies under alternative exchange-rate regimes, in F. van der Ploeg (ed.), Advanced Lectures in Quantitative Ecottomics, London-Orlando: Academic Press Ltd., 1990, pp. 9l - 121.

No. 35 Th. van de Klundert, On socioeconomic causes of 'wait unemployment', European Economic Review, vol. 34, no. 5, 1990, pp. 1011 - 1022.

No. 36 R.1.M. Alessie, A. Kapteyn, ].B. van Lochem and T.J. Wansbeek, Individual effects in utility consistent models of demand, in J. Hartog, G. Ridder and J. Theeuwes (eds.), Panel Data and Labor Market Studles, Amsterdam: Elsevier Science Publishers B. V. (North-Holland), (990, pp. 253 - 278.

No.37 F. van der Ploeg, Capital accumulation, inflation and long-run conflict in international objectives, Oxford Economic Papers, vol. 42, no. 3, 1990, pp. 501 - 525.

No. 38 Th. Nijman and F. Palm, Parameter identification in ARMA Processes in the presence of regular but incomplete sampling, Journaloj7ïme Series Analysis, vol. I1, no. 3, 1990, pp. 239 - 248.

No. 39 Th. van de Klundert, Wage differentials and employment in a two-sector model with a dual labour market, Metroeconanica, vol. 40, no. 3, 1989, pp. 235 - 256. No. 40 Th. Nijman and M.F.1. Steel, Exclusion restrictions in instrumental variables equations, Econometrie Reviews, vol. 9, no. 1, 1990, pp. 37 - 55.

No. 4l A. van Soest, I. Woittiez and A. Kapteyn, Labor supply, income taxes, and hours restrictions in the Netherlands, lourna! ojHuman Resources, vol. 25, no. 3, 1990, pp. S l7 - 558.

No. 42 Th.C.M.J. van de Klundert and A.B.T.M. van Schaik, Unemployment persistence and loss of productive capacity: a Keynesian approach, JournalojMacro- economics, vol. l2, no. 3, 1990, pp. 363 - 380.

No. 43 Th. Nijman and M. Verbeek, Estimation of time-dependent parameters in linear models using cross-sections, panels, or both, Jousnal of Econometrics, vol. 46, no. 3, 1990, pp. 333 - 346.

No. 44 E. van Damme, R. Selten and E. Winter, Alternating bid bargaining with a smallest money unit, Games and Economic Behavior, vol. 2, no. 2, 1990, pp. I88 - 201.

No. 45 C. Dang, The D~-triangulation of R" for simplicial algorithms for computing solutions of nonlinear equations, Mathematics ojOperations Research, vol. l6, no. l, 1991, pp. 148 - ltíl.

No. 46 Th. Nijman and F. Palm, Predictive accuracy gain from disaggregate sampling in ARIMA models, JournalojBusiness dc Economic Statistics, vol. 8, no. 4, 1990, pp. 405 - 415.

No. 47 ].R. Magnus, On cenain moments relating to ratios of quadratic forms in normal variables: funher results, Sankhya: 7he Indian Journal of Statistics, vol. 52, series B, part. t, 1990, pp. 1- 13.

No. 48 M.F.J. Steel, A Bayesian analysis of simultaneous equation models by combining recursive analytical and numerical approaches, JournalojEconometrics, vol. 48, no. 112, 1991, pp. 83 - 117.

No. 49 F. van der Ploeg and C. Withagen, Pollution control and the ramsey problem, Environmenta! and Resource Economics, vol. 1, no. 2, 1991, pp. 215 - 236.

No. 50 F. van der Ploeg, Money and capital in interdependent economies with overlapping generations, Economica, vol. 58, no. 230, 1991, pp. 233 - 256.

No. 51 A. Kapteyn and A. de Zeeuw, Changing incentives for economic research in the Netherlands, European Econamic Review, vol. 35, no. 213, 1991, pp. 603 - 611.

No. 52 C.G. de Vries, On the relation between GARCH and stable processes, Jourrtal oj Econometrics, vol. 48, no. 3, 1991, pp. 313 - 324.

No. 53 R. Alessie and A. Kapteyn, Habit formation, interdependent preferences and demographic effects in the almost ideal demand system, The Economic ]ournal, vol. 101, no. 406, 1991, pp. 404 - 419.

No. 54 W. van Groenendaal and A. de Zeeuw, Control, coordination and conflict on international commodity markets, Economic Modelling, vol. 8, no. 1, 1991, pp. 90 - 101. No. 55 F. van der Ploeg and A.J. Markink, Dynamic policy in linear models with rational expectations of future events: A computer package, Computer Science in Economics and Management, vol. 4, no. 3, 1991, pp. 175 - 199.

No. 56 H.A. Keuzenkamp and F. van der Ploeg, Savings, investment, government finance, and the current account: The Dutch experience, in G. Alogoskoufis, L. Papademos and R. Portes (eds.), Ezternal Constraints on Macrceconomic Policy: The European Experience, Cambridge: Cambridge University Press, 1991, pp. 219 - 263.

No. 57 Th. Nijman, M. Verbeek and A. van Scest, The efficiency of rotating-panel designs in an analysis-of-variance model, ]ournal of Econometrics, vol. 49, no. 3, 1991, pp. 373 - 399.

No. 58 M.F.J. Steel and J.-F. Richard, Bayesian multivariate exogeneity analysis - an application to a UK money demand equation, Journal of Econometrics, vol. 49, no. l l2, 1991, pp. 239 - 274.

No. 59 Th. Nijman and F. Palm, Generalized least squares estimation of linear models containing rational future ezpectations, International Economic Review, vol. 32, no. 2, 1991, PP. 383 - 389.

No. 60 E. van Darnme, Equilibrium selection in 2 x 2 games, Revista Espanola de Economia, vol. 8, no. l, 1991, pp. 37 - 52.

No. 61 E. Bennett and E, van Damme, Demand commitment bargaining: the case of apex games, in R. Selten ( ed.), Game Equilibrium Models lIí - Strategic Bargaining, Berlin: Springer-Verlag, 1991, pp. 118 - 140.

No. 62 W. Giith and E. van Damme, Gorby games - a game theoretic analysis of disarmament campaigns and the defense efficiency - hypothesis -, in R. Avenhaus, H. Karkar and M. Rudnianski (eds.), Defense Decision Making - Analytica) Support and Crisis Management, Berlin: Springet-Verlag, 1991, pp. 215 - 240.

No. 63 A. Rcell, Dual-capacity trading and the quality of the macket, Journal ojFinancia! Intermediation, vol. 1, no. 2, 1990, pp. 105 - 124.

No. 64 Y. Dai, G. van der Laan, A.J.1. Talman and Y. Yamamoto, A simplicial algorithm for the nonlinear stationary point problem on an unbounded polyhedron, Siam Journal of Optimization, vol. 1, no. 2, 1991, pp. 15l - 165.

No.65 M. McAleer and C.R. McKenzie, Keynesian and new classical models of unemployment revisited, The Economic Journal, vol. 101, no. 406, 1991, pp. 359 - 381.

No. 66 A.J.J. Talman, General equilibrium programming, NieuwArchief voor Wiskunde, vol. 8, no. 3, 1990, pp. 387 - 397.

No. 67 J.R. Magnus and B. Pesaran, The bias of forecasts from a first-order autoregression, Econometric Theory, vol. 7, no. 2, 1991, pp. 222 - 235. No. 68 F. van der Ploeg, Macrceconomic policy coordination issues during the various phases of economic and monetary integration in Europe, European Economy - The Economics ojEMU, Commission of the European Communities, special edition no. 1, 1991, pp. 136 - 164.

No. 69 H. Keuzenkamp, A precursor to Muth: Tinbergen's 1932 model of rational ezpectations, The Economic Journal, vol. 101, no. 408, 1991, pp. 1245 - 1253.

No. 70 L. Zou, The target-incentive system vs. the price-incentive system under adverse selection and the ratchet effect, Journalof Public Econonrics, vol. 46, no. 1, 1991, PP. 51 - 89.

No. 7l E. Bomhoff, Between price reform and privatization: Eastern Europe in transition, Finanzmarkt und Portfolio Management, vol. 5, no. 3, 1991, pp. 241 - 251.

No. 72 E. Bomhoff, Stability of velocity in the major industrial countries: a Kalman filter approach, International Monetary Fund Staff Papers, vol. 38, no. 3, 1991, pp. 626 - 642.

No. 73 E. Bomhoff, Currency convertibility: when and how? A contribution to the Bulgarian debate, Kredit ~nd Kapital, vol. 24, no. 3, 1991, pp. 412 - 431.

No. 74 H. Keuzenkamp and F. van der Ploeg, Perceived constraints for Dutch unemployment policy, in C. de Neubourg (ed.), The An of FullEmployment - Unemployment Policy in Open Economies, Contributions to Economic Analysis 203, Amsterdam: Elsevier Science Publishers B.V. (North-Holland), 1991, pp. 7- 37.

No. 75 H. Peters and E. van Damme, Characterizing the Nash and Raiffa bargaining solutions by disagreement point azions, Mathematics of Operations Research, vol. 16, no. 3, 1991, pp. 447 - 461.

No. 76 P.J. Deschamps, On the estimated variances of tegression ccefficients in misspecitied error components models, Econometric Theory, vol. 7, no. 3, 1991, pp. 369 - 384.

No. 77 A. de Zeeuw, Note on 'Nash and Stackelberg solutions in a differential game model of capitalism', Journalof Econontic Dynamics and Control, vol. 16, no. 1, 1992, pp. 139 - 145.

No. 78 J.R. Magnus, On the fundamental bordered matriz of linear estimation, in F. van der Ploeg (ed.), Advanced Lectures in Quantitative Economics, London-Orlando: Academic Press Ltd., 1990, pp. 583 - 604.

No. 79 F. van der Plceg and A. de Zeeuw, A differential game of international pollution control, Systems and Control Letters, vol. 17, no. 6, 1991, pp. 409 - 414.

No. 80 Th. Nijman and M. Verbeek, The optimal choice of controls and pre-ezperimen- tal observations, Journal of Econometrics, vol. 51, no. 1~2, 1992, pp. t83 - 189.

No. 81 M. Verbeek and Th. Nijman, Can cohort data be treated as genuine panel data7, Empirical Economics, vol. 17, no. 1, 1992, pp. 9- 23. No. 82 E. van Damme and W. Guth, Equilibrium selection in the Spence signaling game, in R. Selten (ed.), Game Equilibrium Models II - Methods, Morals, and Markets, Berlin: Springer-Verlag, 1991, pp. 263 - 288.

No. 83 R.P. Gilles and P.11.M. Ruys, Characteri~ation of economic agents in arbitrary communication structures, Neuw Archief voor Wiskunde, vol. 8, no. 3, 1990, pp. 325 - 345.

No. 84 A. de Zeeuw and F. van der Ploeg, Difference games and policy evaluation: a conceptual framework, Osford Economic Papers, vol. 43, no. 4, 1991, pp. 612 - 636.

No. 85 E. van Damme, Fair division under asymmetric information, in R. Selten (ed.), Rational Inreraction - Essays in Honor of John C. Harsanyi, BerlittlHeidelberg: Springer-Verlag, 1992, pp. 121 - 144.

No. 86 F. de Jong, A. Kemna and T. Kloek, A contribution to event study methodology with an application to the Dutch stock market, Journa! of Banking and Finance, vol. 16, no. 1, 1992, pp. 11 - 36.

No. 87 A.P. Barten, The estimation of mixed demand systems, in R. Bewley and T. Van Hoa (eds. ), Contributions to Consumer Demand and Econometrics, Essays in Honour ojHenri 7heil, Basingstoke: The Macmillan Press Ltd., 1992, pp. 3l - 57.

No. 88 T. Wansbeek and A. Kapteyn, Simple estimators for dynamic panel data models with errors in variables, in R. Bewley and T. Van Hoa (eds.), Contributions to Consumer Demand and Econometrics, Essays in Honour of Henri 7ireil, Basingstoke: The Macmillan Press Ltd., 1992, pp. 238 - 251.

No. 89 S. Chib, J. Osiewalski and M. Steel, Posterior inference on the degrees of freedom parameter in multivariate-t regression models, Economics Letters, vol. 37, no. 4, 1991, pp. 39l - 397.

No. 90 H. Peters and P. Wakker, Independence of irrelevant alternatives and revealed group preferences, Econometrica, vol. 59, no. 6, 1991, pp. 1787 - 1801.

No. 91 G. Alogoskoufis and F. van der Ploeg, On budgetary policies, growth, and ezternal deficits in an interdependent world, Journal of the Japanese and Internatiorta[ Economies, vol. 5, no. 4, 1991, pp. 305 - 324.

No. 92 R.P. Gilles, G. Owen and R. van den Brink, Games with permission structures: The cot~junctive approach, Intcrnationa! Journa! of Gamc 7)teory, vol, 20, no. 3, 1992, PP. 277 - 293.

No. 93 J.A.M. Potters, 1.J. Curiel and S.H. Tijs, Traveling satesman games, Mathematical Programrning, vol. 53, no. 2, 1992, pp. 199 - 211.

No. 94 A.P. Jurg, M.J.M. lansen, J.A.M. Potters and S.H. Tijs, A symmetriTation for finite two-person games, Zeitschrifi frlr Operations Research - Methods and Models of Operations Research, vol. 36, no. 2, 1992, pp. 111 - 123. No. 95 A. van den Nouweland, P. Borm and S. Tijs, Allocation rules Cor hypergraph communication situations, International Jounwl of Came Theory, vol. 20, no. 3, 1992, pp. 255 - 268.

No. 96 E.]. Bomhoff, Monetary reform in Eastern Europe, European Economic Review, vol. 36, no. 213, 1992, pp. 454 - 458.

No. 97 F. van der Ploeg and A. de Zeeuw, International aspects of pollution control, Environmental and Resource Economics, vol. 2, no. 2, 1992, pp. 1 l7 - 139.

No. 98 P.E.M. Borm and S.H. Tijs, Strategic claim games corresponding to an NTU-game, Games and Economie Behavior, vol. 4, no. l, 1992, pp. 58 - 71.

No. 99 A. van Soest and P. Kooreman, Coherency of the indirect translog demand system with binding nonnegativity constraints, Journal of Ecanometrics, vol. 44, no. 3, 1990, pp. 39l - 400.

No. 100 Th. ten Raa and E.N. Wolff, Secondary products and the measurement of productivity growth, Regional Science and Urban Economics, vol. 21, no. 4, 1991, pp. 58l - 615.

No. l01 P. Kooreman and A. Kapteyn, On the empirical implementation of some game theoretic models of household labor supply, The Jounu:l oj Human Resources, vol. 25, no. 4, 1990, pp. 584 - 598.

No. 102 H. Bester, Bertrand equilibrium in a differentiated duopoly, Internarional Economic Review, vol. 33, no. 2, 1992, pp. 433 - 448.

No. 103 ].A.M. Potters and S.H. Tijs, The nucleolus of a matriz game and other nucleoli, Mathenwtics of Operations Research, vol. 17, no. 1, 1992, pp. 164 - 174.

No. l04 A. Kapteyn, P. Kooreman and A. van Soest, Quantity rationing and concavity in a flexible household labor supply model, Review of Economics and Statistics, vol. 72, no. l, 1990, pp. 55 - 62. ~

No. 105 A. Kapteyn and P. Kooreman, Household labor supply: What kind of data can tell us how many decision makers there are?, European Economic Review, vol. 36, no. 213, 1992, pp. 365 - 371.

No. (06 Th. van de Klundert and S. Smulders, Reconstructing growth [heory: A survey, De Economist, vol. 140, no. 2, 1992, pp. l77 - 203.

No. l07 N. Rankin, Imperfect competition, expectations and the multiple effects of monetary growth, lhe Economic Journal, vol. 102, no. 413, 1992, pp. 743 - 753.

No. ]08 l. Greenberg, On the sensitivity of von Neumann and Morgenstern abstract stable sets: The stable and the individual stable bargaining set, Inrernationa! Journal of t3ame 7heory, vol. 21, no. 1, 1992, pp. 41 - 55.

No. l09 S. van Wijnbergen, Trade reform, policy uncertainty, and the current account: A non-ezpected-utility approach, American Economic Review, vol. 82, no. 3, 1992, pp. 626 - 633. No. I10 M. Verbeek and Tli. Nijman, Testing for selectivity bias in panel data models, International Eco~tomic Review, vol. 33, no. 3, 1992, pp. 681 - 703.

No. I 11 Th. Nijman and M. Verbeek, Nonresponse in panel data: The impact on estimates of a life cycle consumption function, Journa! oJApplied Econometrics, vol. 7, no. 3, 1992, pp. 243 - 257.

No. I 12 1. Bomze and E. van Damme, A dynamical characterization of evolutionarily stable states, Aroials oj Operations Researeh, vol. 37, 1992, pp. 229 - 244.

No. 113 P.1. Deschamps, Expectations and intertemporal separability in an empirical model of con.cumption and investment under uncertainty, Empirical Economics, vol. 17, no. 3, 1992, pp. 419 - 450.

No. 114 K. Kamiya and D. Talman, Simplicial algorithm for computing a core element in a balanced game, Journa!ojthe Operations Research, vol. 34, no. 2, 1991, pp. 222 - 228.

No. 115 G.W. Imbens, An efficient method of moments estimator for discrete choice models with choice-based sampling, Econometrica, vol. G0, no. 5, 1992, pp. 1187 -1214.

No. I 16 P. Borm, On perfectness concepts for bimatrix games, OR Spektrum, vol. 14, no. 1, 1992, pp. 33 - 42.

No. 117 A.P. ]urg, 1. Garcia lurado and P.E.M. Borm, On modifications of the concepts of perfect and proper equilibria, OR Spektrum, vol. 14, no. 2, 1992, pp. 85 - 90.

No. 118 P. Borm, H. Keiding, R.P. McLean, S. Oortwijn and S. Tijs, The compromise value for NTU-games, Internationa! Journa! oj Game 13~eory, vol. 21, no. 2, 1992, pp. 175 - 189.

No. l l9 M. Maschler, I.A.M. Potters and S.H. Tijs, The general nucleolus and the reduced game property, In[ernationalJournalojGame Theory, vol. 21, no. I, 1992, pp. 85 - 106.

No. 120 K. Wárneryd, Communication, correlation and symmetry in bargaining, Economics . Letters, vol. 39, no. 3, 1992, pp. 295 - 300.

No. 121 M.R. Baye, D. Kovenock and C.G. de Vries, It takes two to tango: equilibria in a model of sales, Games andEconomic Behavior, vol. 4, no. 4, 1992, pp. 493 - 510.

No. 122 M. Verbeek, Pseudo panel data, in L. Mátyás and P. Sevestre (eds.), 7he Econometrics ojPanel Data, Dordrecht: Kluwer Academic Publishers, 1992, pp. 303 - 315.

No. l23 S. van Wijnbergen, Intertemporal speculation, shortages and the political economy of price reform, The Economic Journal, vol. 102, no. 415, 1992, pp. 1395 - 1406.

No. 124 M. Verbeek and Th. Nijman, Incomplete panels and selection bias, in L. Mátyás and P. Sevestre (eds.), 77te Econometrics oJPane! Data, Dordrecht: Kluwer Academic Publishers, 1992, pp. 262 - 302. No. 125 J.J. Sijben, Monetary policy in a game-theoretic framework, Jahrbucher fur Nationalákonomie und Statistik, vol. 210, no. 314, I992, pp. 233 - 253.

No. 126 H.A.A. Verbon and M.J.M. Verhceven, Decision making on schemes under rational expectations, Journalof Economics, vol. 56, no. 1, 1992, pp. 71 - 97.

No. 127 L. Zou, Ownership structure and efficiency: An incentive mechanism approach, Journal ojComparative Economics, vol. 16, no. 3, 1993, pp. 399 - 431.

No. 128 C. Fershtman and A. de Zeeuw, Capital accumulation and entry deterrence: A clarifying note, in G. Feichtinger (ed.), Dynarnic Economic Models atd Optintal Control, Amsterdam: Elsevier Science Publishers B.V. (North-Holland), 1992, pp. 281 - 296.

No. 129 L. Bovenberg and C. Petersen, Public debt and pension policy, Fiscal Srudies, vol. 13, no. 3, 1992, pp. 1- 14.

No. 130 R. Gradus and A. de Zeeuw, An employment game betwcen government and firms, Optinwl Control Applications á Methods, vol. 13, no. 1, 1992, pp. 55 - 71.

No. 13l Th. Nijman and R. Beetsma, Empirical tests of a simple pricing model for sugar futures, Annales d'Économie et de Statistique, no. 24, 1991, pp. 121 - 131.

No. 132 F. Groot, C. Withagen and A. de Zeeuw, Note on the open-loop Von Stackelberg equilibrium in the Cartel versus Fringe model, The Economic Journal, vol. 102, no. 415, 1992, pp. 1478 - 1484.

No. 133 S. Eijffinger and N. Gruijters, On the effectiveness of daily intervention by the Deutsche Bundesbank and the Federal Reserve System in the US dollar - deutsclie mark ezchange market, in BaltenspergerlSinn (eds), Ezchange-Rate Regimes and Currency Unions, Basingstoke: The Macmillan Press Ltd., 1992, pp. I31 - 156.

No. l35 A. K. Bera and S. Lee, Information matriz test, parameter heterogeneity and ARCH: a synthesis, Review ojEcottomic Studies, 60, 1993, pp. 229 - 240.

No. 136 H. G. Blcemen and A. Kapteyn, The joint estimatiori of a non-linear labour supply function and a wage equation using simulated response probabilities, Annales d'Économie et de Statistique, No. 29, 1993, pp. !75 - 205.

No. 137 H. Bester, Bargaining versus price competition in markets with quality uncertainty, 77te American Ecottomic Review, Vol. 83, No. 1, March 1993, pp. 278 - 288.

No. 138 K. Wíirneryd, Anarchy, uncertainty, and the emergence of property rights, Economics atut Politics, Vol. 5, No. 1, March 1993, pp. 1- 14.

No. 139 A. L. Bovenberg and L.H. Goulder, Promoting investment under international capital mobility: an intertemporal general equilibrium analysis, 77te Scandinavian Journaloj Economics, Vol. 95, No. 2, 1993, pp. 133 - I56.

No. 140 S. Eijffinger and E. Schaling, Central bank independence in twelve industrial countries, Banca Nazionale del lavoro Quarterly Review, No. 184, March 1993, pp. 49-89. No. 141 S. Eijffinger and A. van Riztel, The lapanese financial system and monetary policy: a descriptive review, Japanand the World Economy, Vol. 4, No. 4, 1992, pp 291- 309.

No. 142 A. L. Bovenberg, Invesunent-promoting policies in open economies: the importance of intergenerational and international distributional ef(ects, Journal oj Pub[ic Economics, Vol. Sl, 1993, North Holland, pp. 3-54 .

No. l43 A. t7zcam, G. ]udge, A Bera and T. Yancey, The risk properties of a pre-test estimator for Zellner's seemingly unrelated regression model, Journalof Quantitative Econornics, Vol. 9, No. 1, January t993, pp. 41-52.

No. l44 F. C. Drost and T. E. Nijman, Temporal aggregation of garch processes, Econometrica, Vol. 61, No. 4, July 1993, pp. 909-927.

No. 145 J. J. G. Lemmen and S.C.W. Eijffinger, The degree of financial integration in the European Community, De Economist, Vol. 141, No. 2, 1993, pp. 189-213.

No. 146 R. Sarin and P. Wakker, A simple aziomatization of nonadditive expected utility, Econametrica, Vol. 60, No. 6, November 1992, pp. 1255-1272.

No. 147 S. Muto, On licensing policies in bertrand competition, Gmnes and Econanic Behaviour, 5, 1993, pp. 257-267.

No. 148 M. Verbeek and T. Nijman, Minimum MSE estimation of a regression model with fized ef(ects from a series of cross-sections, lourna! of Econometrics, 59, 1993, pp. 125-136.

No. 149 R. de Groof and M. van Tuijl, Financial integration and fiscal policy in interdependent two-sector economies with real and nominal wage rigidity, European Journalof Political Economy, Vol. 9, 1993, North Holland, pp. 209-232.

No. 150 A. van Soest, A. Kapteyn and P. Kooreman, Cohetency'and regularity of demand systems with equality and inequality constraints, Jaurnaf of Econometrics, Vol. 57, 1993, North- Holland, pp. 161-188.

No. 15l W. H~rdle and A.B. Tsybakov, How sensitive are average derivatives7, Journa! oj Econometrics, Vol. 58, 1993, North-Holland, pp. 31-48.

No. 152 H. Bester, The role of collateral in a model of debt renegotiation, Journalof Money, Credit artd Banking, Vol. 26, No. 1, February 1494, pp. 72-86.

und No. 153 J. J. Sijben, Credit markets, financial fragility, and the real economy, Kredit Kapital, Vol. 26, No. 4, 1993, pp. 481-S15.

polyhedra, No. 154 Y. Dai and D. Talman, Linear stationary point problems on unbounded Marhematics ojOperations Research, Vol. 18, No. 3, August 1993, pp. 635-644.

allocation systems, No. I55 P. J. Deschamps, Joint tests for regularity and autocorrelation in Journalof Applied Ecanometrics, Vol. 8, 1993, pp. 195-211. No. 156 G. J. Almekinders and S. C. W. Eijffinger, Daily Bundesbank and Federal Reserve interventions: Are they a reaction to changes in the level and volatility of the DMIS- Rate?, Empirical Economics, Vol. 19, 1994, pp. 11I-130.

No. 157 J. Osiewalski and M. F. J. Steel, Robust Bayesian inference in lóspherical models, Bianetrika, Vol. 80, No. 2, 1993, pp. 456-460.

No. I58 A. L. Bovenberg, Policy Instruments for Curbing C02 Emissions: The Case of The Netherlands, Environmenta( and Resource Economics, Vol. 3, 1993, pp. 233-244. P.O. BOX 90153, 5000 LE TILBURG, THE NETHERLANDS Bibiiotheek K. U. Brabant AI~AIEd1~Y1WI111Y1~IN