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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. Lehmann, Paul, 2010. "Combining emissions trading and emissions taxes in a multi-objective world," UFZ Discussion Papers 4/2010, Helmholtz Centre for Environmental Research (UFZ), Division of Social Sciences (ÖKUS).
  2. 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.
  3. Charles D. Kolstad, 2010. "Regulatory Choice with Pollution and Innovation," NBER Working Papers 16303, National Bureau of Economic Research, Inc.
  4. 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.
  5. 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.
  6. Grischa Perino, 2013. "Private provision of public goods in a second-best workd: 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..
  7. 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.
  8. 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.
  9. Pezzey, John C.V. & Jotzo, Frank, 2010. "Tax-Versus-Trading and Free Emission Shares as Issues for Climate Policy Design," Research Reports 95049, Australian National University, Environmental Economics Research Hub.
  10. 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.
  11. 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.
  12. 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.
  13. 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.
  14. Halvor Briseid Storrøsten, 2012. "Prices vs. quantities: Technology choice, uncertainty and welfare," Discussion Papers 677, Research Department of Statistics Norway.
  15. Halvor Briseid Storrøsten, 2014. "Prices vs. Quantities with Endogenous Cost Structure," CESifo Working Paper Series 4625, CESifo Group Munich.
  16. Timo Goeschl & Grischa Perino, 2012. "Instrument Choice and Motivation: Evidence from a Climate Change Experiment," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 52(2), pages 195-212, June.
  17. 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.
  18. Grischa Perino, 2008. "The Design of Permit Schemes and Environmental Innovation," Working Papers 0467, University of Heidelberg, Department of Economics, revised Jun 2008.

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