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Prices vs. quantities: The effects on technology choice

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  • Krysiak, Frank C.

Abstract

It is well-known that price- and quantity-based regulation approaches provide different investment incentives. But usually, only the effect on the level of investment is studied. In this paper, we show that under uncertainty, they also lead to the adoption of different technologies due to the disparate risks that a regulated firm is exposed to. Different regulatory instruments induce different technologies and this effect cannot be compensated by varying the design of the instruments. Furthermore, price-based instruments lead to the adoption of a socially suboptimal technology, so that the inclusion of technology choice provides a bias in favor of a quantity-based regulation compared with Weitzman's (Weitzman, M.L., 1974. Prices vs. quantities. Review of Economic Studies 41; 477-491) criterion.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 92 (2008)
Issue (Month): 5-6 (June)
Pages: 1275-1287

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Handle: RePEc:eee:pubeco:v:92:y:2008:i:5-6:p:1275-1287

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Web page: http://www.elsevier.com/locate/inca/505578

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Citations

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Cited by:
  1. Bergquist, Ann-Kristin & Söderholm, Kristina & Kinneryd, Hanna & Lindmark, Magnus & Söderholm, Patrick, 2012. "Command-and-Control Revisited: Environmental Compliance and Innovation in Swedish Industry 1970-1990," CERE Working Papers 2012:2, CERE - the Center for Environmental and Resource Economics.
  2. Jack Pezzey & Frank Jotzo, 2010. "Tax-Versus-Trading and Free Emission Shares as Issues for Climate Policy Design," Environmental Economics Research Hub Research Reports 1068, Environmental Economics Research Hub, Crawford School of Public Policy, The Australian National University.
  3. Lehmann, Paul, 2010. "Combining emissions trading and emissions taxes in a multi-objective world," MPRA Paper 22544, University Library of Munich, Germany.
  4. Krysiak, Frank C., 2011. "Environmental regulation, technological diversity, and the dynamics of technological change," Journal of Economic Dynamics and Control, Elsevier, vol. 35(4), pages 528-544, April.
  5. Halvor Briseid Storrøsten, 2012. "Prices vs. quantities: Technology choice, uncertainty and welfare," Discussion Papers 677, Research Department of Statistics Norway.
  6. Yang, L. & Ng, C.T. & Cheng, T.C.E., 2011. "Optimal production strategy under demand fluctuations: Technology versus capacity," European Journal of Operational Research, Elsevier, vol. 214(2), pages 393-402, October.
  7. Peter J. Wood & Peter Heindl & Frank Jotzo & Andreas Löschel, 2013. "Linking Price and Quantity Pollution Controls under Uncertainty," CCEP Working Papers 1302, Centre for Climate Economics & Policy, Crawford School of Public Policy, The Australian National University.
  8. Charles D. Kolstad, 2010. "Regulatory Choice with Pollution and Innovation," NBER Working Papers 16303, National Bureau of Economic Research, Inc.
  9. Timo Goeschl & Grischa Perino, 2009. "Instrment choice and motivation: Evidence from a climate change experiment," Working Paper series, University of East Anglia, Centre for Behavioural and Experimental Social Science (CBESS) 09-05, School of Economics, University of East Anglia, Norwich, UK..
  10. Grischa Perino, 2008. "The Design of Permit Schemes and Environmental Innovation," Working Papers 0467, University of Heidelberg, Department of Economics, revised Jun 2008.
  11. Marschinski, Robert & Edenhofer, Ottmar, 2010. "Revisiting the case for intensity targets: Better incentives and less uncertainty for developing countries," Energy Policy, Elsevier, vol. 38(9), pages 5048-5058, September.
  12. Assoc. Prof. Marius Sorin Dincă Ph. D, Lecturer Gheorghița Dincă Ph. D, 2011. "Usingindexes Inthe Complex Analysis Of Sales Turnover," Annals of University of Craiova - Economic Sciences Series, University of Craiova, Faculty of Economics and Business Administration, vol. 4(39), pages 193-202, May.
  13. Halvor Briseid Storrøsten, 2014. "Prices vs. Quantities with Endogenous Cost Structure," CESifo Working Paper Series 4625, CESifo Group Munich.
  14. Schmidt, Robert C. & Marschinski, Robert, 2009. "A model of technological breakthrough in the renewable energy sector," Ecological Economics, Elsevier, vol. 69(2), pages 435-444, December.
  15. Grischa Perino, 2013. "Private provision of public goods in a second-best world: Cap-and-trade schemes limit green consumerism," Working Paper series, University of East Anglia, Centre for Behavioural and Experimental Social Science (CBESS) 13-01, School of Economics, University of East Anglia, Norwich, UK..
  16. Blyth, William & Bunn, Derek & Kettunen, Janne & Wilson, Tom, 2009. "Policy interactions, risk and price formation in carbon markets," Energy Policy, Elsevier, vol. 37(12), pages 5192-5207, December.
  17. Frank C. Krysiak & Iris Maria Oberauner, 2008. "Environmental Policy à la Carte: Letting Firms Choose their Regulation," Working papers 2008/03, Faculty of Business and Economics - University of Basel.
  18. Crépin, Anne-Sophie & Norberg, Jon & Mäler, Karl-Göran, 2011. "Coupled economic-ecological systems with slow and fast dynamics -- Modelling and analysis method," Ecological Economics, Elsevier, vol. 70(8), pages 1448-1458, June.

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