Mandell, Svante (Dept. of Economics, Stockholm University)
Abstract
This paper takes on the issue of ‘Prices vs. Quantities’, see Weitzman (1974), applied to environmental regulations under uncertainty. It is shown that, from an efficiency point of view, it is generally preferable to divide the economy into two parts, one regulated through a tax and the other through cap-and-trade, rather than letting it be subject to either of these regulation mechanisms. This may be so even when the latter alternatives are cost effective while the former is not. Particular interest is devoted to determining the optimal size of each sector. Generally, a steeper marginal abatement cost function relative to the marginal abatement benefit function implies that a larger part of the economy should be taxed.
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Publisher Info
Paper provided by Stockholm University, Department of Economics in its series Research Papers in Economics with number
2004:12.
Length: 19 pages Date of creation: Sep 2004 Date of revision: Handle: RePEc:hhs:sunrpe:2004_0012
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