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Prices vs. quantities: Public finance and the choice of regulatory instruments

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  • Baldursson, Fridrik M.
  • von der Fehr, Nils-Henrik M.

Abstract

Since Montgomery [1972. Markets in licenses and efficient pollution control programs. Journal of Economic Theory 5, 395-418] and Weitzman [1974. Prices vs. quantities. Review of Economic Studies 41, 477-491], it has generally been assumed that, in a full-information setting, tradable quotas and taxes are equivalent regulatory instruments. We demonstrate that, if the government is movitated by public-finance concerns, this equivalence holds only if quotas are short lived. Moreover, the government prefers quotas with the shortest possible lifetime, or, what is equivalent in our setting, taxes.

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Bibliographic Info

Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 52 (2008)
Issue (Month): 7 (October)
Pages: 1242-1255

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Handle: RePEc:eee:eecrev:v:52:y:2008:i:7:p:1242-1255

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Web page: http://www.elsevier.com/locate/eer

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Keywords: Regulation Public finance Effluent taxes Tradable quotas Environmental management;

References

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  1. Lawrence H. Goulder & Ian W. H. Parry & Roberton C. Williams III & Dallas Burtraw, 1998. "The Cost-Effectiveness of Alternative Instruments for Environmental Protection in a Second-Best Setting," NBER Working Papers 6464, National Bureau of Economic Research, Inc.
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  6. Eirik S. Amundsen & Fridrik M. Baldursson & Jørgen Birk Mortensen, 2005. "Price Volatility and Banking in Green Certificate Markets," Discussion Papers 05-08, University of Copenhagen. Department of Economics.
  7. Montgomery, W. David, 1972. "Markets in licenses and efficient pollution control programs," Journal of Economic Theory, Elsevier, vol. 5(3), pages 395-418, December.
  8. Stavins, Robert N., 1996. "Correlated Uncertainty and Policy Instrument Choice," Journal of Environmental Economics and Management, Elsevier, vol. 30(2), pages 218-232, March.
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  11. Loeb, Martin & Magat, Wesley A, 1979. "A Decentralized Method for Utility Regulation," Journal of Law and Economics, University of Chicago Press, vol. 22(2), pages 399-404, October.
  12. de Bovenberg, A Lans & Mooij, Ruud A, 1994. "Environmental Levies and Distortionary Taxation," American Economic Review, American Economic Association, vol. 84(4), pages 1085-89, September.
  13. Hoel, Michael, 1998. " Emission Taxes versus Other Environmental Policies," Scandinavian Journal of Economics, Wiley Blackwell, vol. 100(1), pages 79-104, March.
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  15. Fridrik M. Baldursson & Nils-Henrik M. von der Fehr, 2007. "A Whiter Shade of Pale: A Whiter Shade of Pale: On the Political Economy of Regulatory Instruments," Journal of the European Economic Association, MIT Press, vol. 5(1), pages 37-65, 03.
  16. Coase, Ronald H, 1972. "Durability and Monopoly," Journal of Law and Economics, University of Chicago Press, vol. 15(1), pages 143-49, April.
  17. Weitzman, Martin L, 1974. "Prices vs. Quantities," Review of Economic Studies, Wiley Blackwell, vol. 41(4), pages 477-91, October.
  18. Baumol,William J. & Oates,Wallace E., 1988. "The Theory of Environmental Policy," Cambridge Books, Cambridge University Press, number 9780521311120, November.
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  21. Hepburn, C. & Grubb, M. & Neuhoff, K. & Matthes , F. & Tse, M., 2006. "Auctioning of EU ETS Phase II allowances: how and why?," Cambridge Working Papers in Economics 0644, Faculty of Economics, University of Cambridge.
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Citations

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Cited by:
  1. Konstantinos Angelopoulos & George Economides & Apostolis Philippopoulos, 2010. "What is the Best Environmental Policy? Taxes, Permits and Rules under Economic and Environmental Uncertainty," CESifo Working Paper Series 2980, CESifo Group Munich.
  2. Halvor Briseid Storrøsten, 2014. "Prices vs. Quantities with Endogenous Cost Structure," CESifo Working Paper Series 4625, CESifo Group Munich.

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