Complete Information, Asymmetric Information and Environmental Tax Policy: the Application of Principle-Agent Model

Abstract

How should the environmental policy corresponding to the use of wealth and goods harmful to the environment under the circumstances of complete information and asymmetric information be formulated? This is the topic of discussion for this article. The main conclusions are: 1) Higher social emphasis on environmental pollution will lead to reduced consumption level of pollution goods. 2) With the implementation of tax policy, the government is able to reduce the quantity of pollution goods, increase the consumption level of more environmentally friendly goods, bring the society closer to optimal level, and enhance social welfare level. 3) The optimal rate of the subsidy (taxation) for the more environmentally friendly goods is t2=t1-Δθ.