Prices vs. quantities: The effects on technology choice
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.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
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.:
- Zhao, Jinhua, 2003.
"Irreversible abatement investment under cost uncertainties: tradable emission permits and emissions charges,"
Journal of Public Economics,
Elsevier, vol. 87(12), pages 2765-2789, December.
- Zhao, Jinhua, 2003. "Irreversible Abatement Investment Under Cost Uncertainties: Tradable Emission Permits and Emissions Charges," Staff General Research Papers Archive 10223, Iowa State University, Department of Economics.
- 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.
- 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).
- Mendelsohn, Robert, 1984. "Endogenous technical change and environmental regulation," Journal of Environmental Economics and Management, Elsevier, vol. 11(3), pages 202-207, September.
- Till Requate, 2005. "Timing and Commitment of Environmental Policy, Adoption of New Technology, and Repercussions on R&D," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 31(2), pages 175-199, 06.
- Kaboski, Joseph P., 2005. "Factor price uncertainty, technology choice and investment delay," Journal of Economic Dynamics and Control, Elsevier, vol. 29(3), pages 509-527, March.
- Chao, Hung-Po & Wilson, Robert, 1993. "Option Value of Emission Allowances," Journal of Regulatory Economics, Springer, vol. 5(3), pages 233-249, September.
- Kling, Catherine L. & Zhao, Jinhua, 2000.
"On the Long-Run Efficiency of Auctioned vs. Free Permits,"
Staff General Research Papers Archive
1836, Iowa State University, Department of Economics.
- Kling, Catherine L. & Zhao, Jinhua, 2000. "On the long-run efficiency of auctioned vs. free permits," Economics Letters, Elsevier, vol. 69(2), pages 235-238, November.
- Binswanger, Hans P, 1974.
"A Microeconomic Approach to Induced Innovation,"
Royal Economic Society, vol. 84(336), pages 940-958, December.
- Spulber, Daniel F., 1985. "Effluent regulation and long-run optimality," Journal of Environmental Economics and Management, Elsevier, vol. 12(2), pages 103-116, June.
- Martin L. Weitzman, 1974.
"Prices vs. Quantities,"
Review of Economic Studies,
Oxford University Press, vol. 41(4), pages 477-491.
- Magat, Wesley A., 1978. "Pollution control and technological advance: A dynamic model of the firm," Journal of Environmental Economics and Management, Elsevier, vol. 5(1), pages 1-25, March.
- Parry, Ian & Pizer, William & Fischer, Carolyn, 1998.
"Instrument Choice for Environmental Protection When Technological Innovation is Endogenous,"
dp-99-04, Resources For the Future.
- Fischer, Carolyn & Parry, Ian W. H. & Pizer, William A., 2003. "Instrument choice for environmental protection when technological innovation is endogenous," Journal of Environmental Economics and Management, Elsevier, vol. 45(3), pages 523-545, May.
- Newell, Richard G. & Pizer, William A., 2003.
"Regulating stock externalities under uncertainty,"
Journal of Environmental Economics and Management,
Elsevier, vol. 45(2, Supple), pages 416-432, March.
- Tarui, Nori & Polasky, Stephen, 2005. "Environmental regulation with technology adoption, learning and strategic behavior," Journal of Environmental Economics and Management, Elsevier, vol. 50(3), pages 447-467, November.
- Farzin, Y H & Kort, P M, 2000.
" Pollution Abatement Investment When Environmental Regulation Is Uncertain,"
Journal of Public Economic Theory,
Association for Public Economic Theory, vol. 2(2), pages 183-212.
- Kort, P.M. & Farzin, Y.H., 2000. "Pollution abatement investment when environmental regulation is uncertain," Other publications TiSEM 90e78d8b-95d9-4d17-9d0f-4, Tilburg University, School of Economics and Management.
- Downing, Paul B. & White, Lawrence J., 1986. "Innovation in pollution control," Journal of Environmental Economics and Management, Elsevier, vol. 13(1), pages 18-29, March.
- Parry, Ian, 1997.
"Pollution Regulation and the Efficiency Gains from Technological Innovation,"
dp-98-04, Resources For the Future.
- Parry, Ian W H, 1998. "Pollution Regulation and the Efficiency Gains from Technological Innovation," Journal of Regulatory Economics, Springer, vol. 14(3), pages 229-254, November.
- Jaffe, Adam B. & Newell, Richard G. & Stavins, Robert N., 2003. "Chapter 11 Technological change and the environment," Handbook of Environmental Economics, in: K. G. Mäler & J. R. Vincent (ed.), Handbook of Environmental Economics, edition 1, volume 1, chapter 11, pages 461-516 Elsevier.
- Baker, Erin & Shittu, Ekundayo, 2006. "Profit-maximizing R&D in response to a random carbon tax," Resource and Energy Economics, Elsevier, vol. 28(2), pages 160-180, May.
- Jung, Chulho & Krutilla, Kerry & Boyd, Roy, 1996. "Incentives for Advanced Pollution Abatement Technology at the Industry Level: An Evaluation of Policy Alternatives," Journal of Environmental Economics and Management, Elsevier, vol. 30(1), pages 95-111, January.
- Requate, Till & Unold, Wolfram, 2003. "Environmental policy incentives to adopt advanced abatement technology:: Will the true ranking please stand up?," European Economic Review, Elsevier, vol. 47(1), pages 125-146, February.
- Margaret Insley, 2003.
"On the option to invest in pollution control under a regime of tradable emissions allowances,"
Canadian Journal of Economics,
Canadian Economics Association, vol. 36(4), pages 860-883, November.
- Margaret Insley, 2002. "On the option to invest in pollution control under a regime of tradable emissions allowances," Working Papers 02008, University of Waterloo, Department of Economics, revised Jan 2002.
- Mills, David E, 1984. "Demand Fluctuations and Endogenous Firm Flexibility," Journal of Industrial Economics, Wiley Blackwell, vol. 33(1), pages 55-71, September.
- Milliman, Scott R. & Prince, Raymond, 1989. "Firm incentives to promote technological change in pollution control," Journal of Environmental Economics and Management, Elsevier, vol. 17(3), pages 247-265, November.
When requesting a correction, please mention this item's handle: RePEc:eee:pubeco:v:92:y:2008:i:5-6:p:1275-1287. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamier, Wendy)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.