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Prices vs quantitities: the case of risk averse agents

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Author Info
Baldursson, Fridrik M. () (University of Iceland)
von der Fehr, Nils-Henrik M () (Dept. of Economics, University of Oslo)

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Abstract

We explore the efficacy of price and quantity controls as environmental policy instruments in a stochastic setting in which agents are risk averse. We demonstrate that the assumption of risk aversion may improve the performance of a tax relative to that of a system of tradable quotas, and that restricting quota trade may enhance efficiency even though risk aversion in itself limits volumes of trade. The government may be able to improve the performance of a tradable quota system by judicious choice of distribution and amount of initial quotas and by trading pro-actively in the quota market.

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File URL: http://www.oekonomi.uio.no/memo/memopdf/memo0102.pdf
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Publisher Info
Paper provided by Oslo University, Department of Economics in its series Memorandum with number 01/2002.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length: 25 pages
Date of creation: 21 Feb 2002
Date of revision:
Handle: RePEc:hhs:osloec:2002_001

Contact details of provider:
Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway
Phone: 22 85 51 27
Fax: 22 85 50 35
Email:
Web page: http://www.oekonomi.uio.no/indexe.html
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Related research
Keywords: regulation; effluent taxes; tradable quotas; uncertainty; risk aversion; environmental management;

Find related papers by JEL classification:
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)

References listed on IDEAS
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  1. Anastasios Xepapadeas, 1999. "Environmental Policy and Firm Behavior: Abatement Investment and Location Decisions Under Uncertainty and Irreversibility," NBER Technical Working Papers 0243, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. Zhao, Jinhua, 2003. "Irreversible Abatement Investment under Cost Uncertainties: Tradable Emission Permits and Emissions Charges," Staff General Research Papers 10223, Iowa State University, Department of Economics.
    Other versions:
  3. Stavins, Robert, 2004. "Environmental Economics," Discussion Papers dp-04-54, Resources For the Future. [Downloadable!]
    Other versions:
  4. Hahn, Robert W, 1984. "Market Power and Transferable Property Rights," The Quarterly Journal of Economics, MIT Press, vol. 99(4), pages 753-65, November. [Downloadable!] (restricted)
    Other versions:
  5. Zhao, Jinhua, 2000. "Irreversible Abatement Investment Under Cost Uncertainties: Tradable Emission Permits And Emissions Charges," 2000 Annual meeting, July 30-August 2, Tampa, FL 21816, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  6. Montero, Juan-Pablo, 2002. "Prices versus quantities with incomplete enforcement," Journal of Public Economics, Elsevier, vol. 85(3), pages 435-454, September. [Downloadable!] (restricted)
  7. Jinhua Zhao, 2000. "Irreversible Abatement Investment Under Cost Uncertainties: Tradable Emission Permits and Emissions Charges," Center for Agricultural and Rural Development (CARD) Publications 00-wp252, Center for Agricultural and Rural Development (CARD) at Iowa State University. [Downloadable!]
  8. Chao, Hung-Po & Wilson, Robert, 1993. "Option Value of Emission Allowances," Journal of Regulatory Economics, Springer, vol. 5(3), pages 233-49, September.
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Statistics
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