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Prices vs. quantities: Public finance and the choice of regulatory instruments

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  • Baldursson, Fridrik M.
  • von der Fehr, Nils-Henrik M.

Abstract

Since Montgomery [1972. Markets in licenses and efficient pollution control programs. Journal of Economic Theory 5, 395-418] and Weitzman [1974. Prices vs. quantities. Review of Economic Studies 41, 477-491], it has generally been assumed that, in a full-information setting, tradable quotas and taxes are equivalent regulatory instruments. We demonstrate that, if the government is movitated by public-finance concerns, this equivalence holds only if quotas are short lived. Moreover, the government prefers quotas with the shortest possible lifetime, or, what is equivalent in our setting, taxes.

Suggested Citation

  • Baldursson, Fridrik M. & von der Fehr, Nils-Henrik M., 2008. "Prices vs. quantities: Public finance and the choice of regulatory instruments," European Economic Review, Elsevier, vol. 52(7), pages 1242-1255, October.
  • Handle: RePEc:eee:eecrev:v:52:y:2008:i:7:p:1242-1255
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    References listed on IDEAS

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    1. Martin L. Weitzman, 1974. "Prices vs. Quantities," Review of Economic Studies, Oxford University Press, vol. 41(4), pages 477-491.
    2. Stavins, Robert N., 2003. "Experience with market-based environmental policy instruments," Handbook of Environmental Economics,in: K. G. Mäler & J. R. Vincent (ed.), Handbook of Environmental Economics, edition 1, volume 1, chapter 9, pages 355-435 Elsevier.
    3. Bulow, Jeremy I, 1982. "Durable-Goods Monopolists," Journal of Political Economy, University of Chicago Press, vol. 90(2), pages 314-332, April.
    4. Montgomery, W. David, 1972. "Markets in licenses and efficient pollution control programs," Journal of Economic Theory, Elsevier, vol. 5(3), pages 395-418, December.
    5. Eirik Amundsen & Fridrik Baldursson & Jørgen Mortensen, 2006. "Price Volatility and Banking in Green Certificate Markets," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 35(4), pages 259-287, December.
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    11. Fridrik M. Baldursson & Nils-Henrik M. von der Fehr, 2007. "A Whiter Shade of Pale: A Whiter Shade of Pale: On the Political Economy of Regulatory Instruments," Journal of the European Economic Association, MIT Press, vol. 5(1), pages 37-65, March.
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    Cited by:

    1. Halvor Briseid Storrøsten, 2014. "Prices vs. Quantities with Endogenous Cost Structure," CESifo Working Paper Series 4625, CESifo Group Munich.
    2. Fridrik Baldursson & Nils-Henrik Fehr, 2012. "Price Volatility and Risk Exposure: On the Interaction of Quota and Product Markets," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 52(2), pages 213-233, June.
    3. Konstantinos Angelopoulos & George Economides & Apostolis Philippopoulos, "undated". "What is the best environmental policy? Taxes, permits and rules under economic and environmental uncertainty," DEOS Working Papers 1014, Athens University of Economics and Business.
    4. Storrøsten, Halvor Briseid, 2015. "Prices vs. quantities with endogenous cost structure and optimal policy," Resource and Energy Economics, Elsevier, vol. 41(C), pages 143-163.
    5. Florian Habermacher & Paul Lehmann, 2017. "Commitment vs. Discretion in Climate and Energy Policy," CESifo Working Paper Series 6355, CESifo Group Munich.
    6. Oana-Cãtãlina TÃPURICÃ, 2013. "Advantages and Limits of Using Pollution Control Tools as Strategic Options in the Management of Organizations," REVISTA DE MANAGEMENT COMPARAT INTERNATIONAL/REVIEW OF INTERNATIONAL COMPARATIVE MANAGEMENT, Faculty of Management, Academy of Economic Studies, Bucharest, Romania, vol. 14(4), pages 585-595, October.

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