IDEAS home Printed from https://ideas.repec.org/a/kap/enreec/v65y2016i1d10.1007_s10640-015-9884-2.html
   My bibliography  Save this article

On the Informational Superiority of Quantities Over Prices in the Presence of an Externality

Author

Listed:
  • Fabio Antoniou

    (Humboldt-Univeristät zu Berlin)

  • Nikos Tsakiris

    (University of Ioannina)

Abstract

In this study we investigate the convexity of the profit function of a regulated firm with respect to the random shocks in the marginal costs and the demand intercept, and its implications regarding information disclosure when these shocks are revealed to the firm at a future stage. We illustrate that information disclosure is attained when the firm is regulated through the use of a quantity rather than a price instrument. To do so, we argue that increased convexity obtained under complete information is a sufficient condition. As a policy implication, we suggest a new argument which favors the use of quantities over prices. These implications are more pronounced once we allow for multiple firms.

Suggested Citation

  • Fabio Antoniou & Nikos Tsakiris, 2016. "On the Informational Superiority of Quantities Over Prices in the Presence of an Externality," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 65(1), pages 227-250, September.
    • Handle: RePEc:kap:enreec:v:65:y:2016:i:1:d:10.1007_s10640-015-9884-2
    DOI: 10.1007/s10640-015-9884-2
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s10640-015-9884-2
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s10640-015-9884-2?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Tracy R. Lewis, 1996. "Protecting the Environment When Costs and Benefits Are Privately Known," RAND Journal of Economics, The RAND Corporation, vol. 27(4), pages 819-847, Winter.
    2. Fahad Khalil, 1997. "Auditing Without Commitment," RAND Journal of Economics, The RAND Corporation, vol. 28(4), pages 629-640, Winter.
    3. Montero, Juan-Pablo, 2002. "Prices versus quantities with incomplete enforcement," Journal of Public Economics, Elsevier, vol. 85(3), pages 435-454, September.
    4. Anthony Creane & Carl Davidson, 2008. "Information Sharing In Union-Firm Relationships," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(4), pages 1331-1363, November.
    5. Esther Duflo & Michael Greenstone & Nicholas Ryan, 2013. "Truth-telling by Third-party Auditors and the Response of Polluting Firms: Experimental Evidence from India," The Quarterly Journal of Economics, Oxford University Press, vol. 128(4), pages 1499-1545.
    6. Konstantinos Angelopoulos & George Economides & Apostolis Philippopoulos, 2013. "First-and second-best allocations under economic and environmental uncertainty," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 20(3), pages 360-380, June.
    7. David P. Baron & David Besanko, 1984. "Regulation, Asymmetric Information, and Auditing," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 447-470, Winter.
    8. Lode Li, 2002. "Information Sharing in a Supply Chain with Horizontal Competition," Management Science, INFORMS, vol. 48(9), pages 1196-1212, September.
    9. Costello, Christopher & Karp, Larry, 2004. "Dynamic taxes and quotas with learning," Journal of Economic Dynamics and Control, Elsevier, vol. 28(8), pages 1661-1680, June.
    10. Pascal Courty & Li Hao, 2000. "Sequential Screening," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 67(4), pages 697-717.
    11. Juan-Pablo Montero, 2008. "A Simple Auction Mechanism for the Optimal Allocation of the Commons," American Economic Review, American Economic Association, vol. 98(1), pages 496-518, March.
    12. Creane, Anthony, 2007. "Productivity information in vertical sharing agreements," International Journal of Industrial Organization, Elsevier, vol. 25(4), pages 821-841, August.
    13. Larry Karp & Jiangfeng Zhang, 2016. "Taxes Versus Quantities for a Stock Pollutant with Endogenous Abatement Costs and Asymmetric Information," Studies in Economic Theory, in: Graciela Chichilnisky & Armon Rezai (ed.), The Economics of the Global Environment, pages 493-533, Springer.
    14. Frank Krysiak, 2008. "Ex-post efficient permit markets: a detailed analysis," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 39(4), pages 397-410, April.
    15. Weitzman, Martin L, 1978. "Optimal Rewards for Economic Regulation," American Economic Review, American Economic Association, vol. 68(4), pages 683-691, September.
    16. Unold, Wolfram & Requate, Till, 2001. "Pollution control by options trading," Economics Letters, Elsevier, vol. 73(3), pages 353-358, December.
    17. Roberts, Marc J. & Spence, Michael, 1976. "Effluent charges and licenses under uncertainty," Journal of Public Economics, Elsevier, vol. 5(3-4), pages 193-208.
    18. Varian, Hal R, 1994. "A Solution to the Problem of Externalities When Agents Are Well-Informed," American Economic Review, American Economic Association, vol. 84(5), pages 1278-1293, December.
    19. Philippe Quirion, 2004. "Prices versus Quantities in a Second-Best Setting," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 29(3), pages 337-359, November.
    20. Fishelson, Gideon, 1976. "Emission control policies under uncertainty," Journal of Environmental Economics and Management, Elsevier, vol. 3(3), pages 189-197, October.
    21. Creane, Anthony & Miyagiwa, Kaz, 2008. "Information and disclosure in strategic trade policy," Journal of International Economics, Elsevier, vol. 75(1), pages 229-244, May.
    22. Anthony Creane, 2008. "Input Suppliers, Differential Pricing, and Information Sharing Agreements," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 17(4), pages 865-893, December.
    23. Rob, Rafael, 1989. "Pollution claim settlements under private information," Journal of Economic Theory, Elsevier, vol. 47(2), pages 307-333, April.
    24. Spulber, Daniel F., 1988. "Optimal environmental regulation under asymmetric information," Journal of Public Economics, Elsevier, vol. 35(2), pages 163-181, March.
    25. Stavins, Robert N., 1996. "Correlated Uncertainty and Policy Instrument Choice," Journal of Environmental Economics and Management, Elsevier, vol. 30(2), pages 218-232, March.
    26. Evan Kwerel, 1977. "To Tell the Truth: Imperfect Information and Optimal Pollution Control," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 44(3), pages 595-601.
    27. John Duggan & Joanne Roberts, 2002. "Implementing the Efficient Allocation of Pollution," American Economic Review, American Economic Association, vol. 92(4), pages 1070-1078, September.
    28. Clemens Heuson, 2008. "Weitzman revisited: Emission standards vs. taxes with uncertain control costs and market power of polluting firms," Working Papers 044, Bavarian Graduate Program in Economics (BGPE).
    29. Clemens Heuson, 2010. "Weitzman Revisited: Emission Standards Versus Taxes with Uncertain Abatement Costs and Market Power of Polluting Firms," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 47(3), pages 349-369, November.
    30. Raith, Michael, 1996. "A General Model of Information Sharing in Oligopoly," Journal of Economic Theory, Elsevier, vol. 71(1), pages 260-288, October.
    31. Roland Strausz, 2011. "Regulatory Risk Under Optimal Monopoly Regulation," Economic Journal, Royal Economic Society, vol. 121(553), pages 740-762, June.
    32. Benjamin A. Olken, 2007. "Monitoring Corruption: Evidence from a Field Experiment in Indonesia," Journal of Political Economy, University of Chicago Press, vol. 115, pages 200-249.
    33. Adar, Zvi & Griffin, James M., 1976. "Uncertainty and the choice of pollution control instruments," Journal of Environmental Economics and Management, Elsevier, vol. 3(3), pages 178-188, October.
    34. Moledina, Amyaz A. & Coggins, Jay S. & Polasky, Stephen & Costello, Christopher, 2003. "Dynamic environmental policy with strategic firms: prices versus quantities," Journal of Environmental Economics and Management, Elsevier, vol. 45(2, Supple), pages 356-376, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Michael Finus & Bianca Rundshagen, 2016. "Game Theory and Environmental and Resource Economics—In Honour of Alfred Endres, Part Two," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 65(1), pages 1-4, September.
    2. Tang, Bao-Jun & Wang, Xiang-Yu & Wei, Yi-Ming, 2019. "Quantities versus prices for best social welfare in carbon reduction: A literature review," Applied Energy, Elsevier, vol. 233, pages 554-564.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Tang, Bao-Jun & Wang, Xiang-Yu & Wei, Yi-Ming, 2019. "Quantities versus prices for best social welfare in carbon reduction: A literature review," Applied Energy, Elsevier, vol. 233, pages 554-564.
    2. Takayoshi Shinkuma & Hajime Sugeta, 2022. "Trial runs as environmental policy with strategic firms," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 24(2), pages 285-303, April.
    3. Boleslavsky, Raphael & Kelly, David L., 2014. "Dynamic regulation design without payments: The importance of timing," Journal of Public Economics, Elsevier, vol. 120(C), pages 169-180.
    4. Spaeter, Sandrine & Verchère, Alban, 2004. "Aléa moral et politiques d’audit optimales dans le cadre de la pollution d’origine agricole de l’eau," Cahiers d'Economie et de Sociologie Rurales (CESR), Institut National de la Recherche Agronomique (INRA), vol. 71.
    5. Pench, Alberto, 2016. "A Note on Pollution Regulation With Asymmetric Information," ET: Economic Theory 232718, Fondazione Eni Enrico Mattei (FEEM).
    6. Kennedy Peter W & Laplante Benoit & Whittington Dale, 2010. "Simple Pricing Schemes for Pollution Control under Asymmetric Information," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 10(1), pages 1-37, February.
    7. Juan Pablo Montero, 2007. "An Auction Mechanism for the Commons: Some Extensions," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 44(130), pages 141-150.
    8. Shinkuma, Takayoshi & Sugeta, Hajime, 2016. "Tax versus emissions trading scheme in the long run," Journal of Environmental Economics and Management, Elsevier, vol. 75(C), pages 12-24.
    9. Holland, Stephen P. & Yates, Andrew J., 2015. "Optimal trading ratios for pollution permit markets," Journal of Public Economics, Elsevier, vol. 125(C), pages 16-27.
    10. Rohling, Moritz & Ohndorf, Markus, 2012. "Prices vs. Quantities with fiscal cushioning," Resource and Energy Economics, Elsevier, vol. 34(2), pages 169-187.
    11. Ian A. MacKenzie, 2017. "Rent creation and rent seeking in environmental policy," Public Choice, Springer, vol. 171(1), pages 145-166, April.
    12. Alberto Pench, 2016. "A Note on Pollution Regulation With Asymmetric Information," Working Papers 2016.20, Fondazione Eni Enrico Mattei.
    13. Berglann, Helge, 2012. "Implementing optimal taxes using tradable share permits," Journal of Environmental Economics and Management, Elsevier, vol. 64(3), pages 402-409.
    14. Sandrine Spaeter & Alban Verchère, 2004. "Agricultural pollution of water, moral hazard and optimal audit policies [Aléa moral et politiques d’audit optimales dans le cadre de la pollution d’origine agricole de l’eau]," Post-Print hal-01201071, HAL.
    15. Shrestha, Ratna K., 2017. "Menus of price-quantity contracts for inducing the truth in environmental regulation," Journal of Environmental Economics and Management, Elsevier, vol. 83(C), pages 1-7.
    16. JunJie Wu & Bruce Babcock, 2001. "Spatial Heterogeneity and the Choice of Instruments to Control Nonpoint Pollution," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 18(2), pages 173-192, February.
    17. Guy Meunier, 2015. "Prices vs. quantities in presence of a second, unpriced, externality," Working Papers hal-01242040, HAL.
    18. Ambec, Stefan & Coria, Jessica, 2021. "The informational value of environmental taxes," Journal of Public Economics, Elsevier, vol. 199(C).
    19. Bovenberg, A. Lans & Goulder, Lawrence H., 2002. "Environmental taxation and regulation," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 23, pages 1471-1545, Elsevier.
    20. Martin L. Weitzman, 2020. "Prices or Quantities Can Dominate Banking and Borrowing," Scandinavian Journal of Economics, Wiley Blackwell, vol. 122(2), pages 437-463, April.

    More about this item

    Keywords

    Environmental regulation; Information disclosure; Quantities versus prices;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F18 - International Economics - - Trade - - - Trade and Environment
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:enreec:v:65:y:2016:i:1:d:10.1007_s10640-015-9884-2. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.