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Regulation with Budget Constraints Can Dominate Regulation by Price and by Quantity

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Author Info
Linda Cohen () (Department of Economics, University of California-Irvine)
Amihai Glazer () (Department of Economics, University of California-Irvine)

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Abstract

A government can use several mechanisms to induce firms to reduce pollution. Well studied are regulations by price and by quantity. We consider a third form of regulation -- government allocates a budget to an agency which subsidizes abatement. We demonstrate that uncertainty can make such constrained regulation more efficient than either regulation by quantity or regulation by price. We also show that the optimal budget declines with a mean-preserving spread in the distribution of marginal costs.

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File URL: http://www.economics.uci.edu/docs/2008-09/cohen-03.pdf
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Publisher Info
Paper provided by University of California-Irvine, Department of Economics in its series Working Papers with number 080903.

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Length: 33 pages
Date of creation: Aug 2008
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Handle: RePEc:irv:wpaper:080903

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Postal: Irvine, CA 92697-3125
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Related research
Keywords: Regulation; Environmental subsidy; Pollution control;

Find related papers by JEL classification:
H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Costs; Distributional Effects; Employment Effects

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Pizer, William A., 2002. "Combining price and quantity controls to mitigate global climate change," Journal of Public Economics, Elsevier, vol. 85(3), pages 409-434, September. [Downloadable!] (restricted)
  2. Cameron Hepburn, 2006. "Regulation by Prices, Quantities, or Both: A Review of Instrument Choice," Oxford Review of Economic Policy, Oxford University Press, vol. 22(2), pages 226-247, Summer.
  3. Louis Kaplow & Steven Shavell, 1997. "On the Superiority of Corrective Taxes to Quantity Regulation," NBER Working Papers 6251, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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This page was last updated on 2009-12-3.

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