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Regulation by Prices, Quantities, or Both: A Review of Instrument Choice

  • Cameron Hepburn

Choosing appropriate policy instruments is an important part of successful regulation. Once objectives are agreed and suitable targets adopted, policy-makers can employ command-and-control regulation and/or economic instruments, and choose between fixing a price or a quantity. This paper examines the relative advantages of price, quantity, and hybrid instruments according to: their efficiency under uncertainty; the trade-off between credible commitment and flexibility; implementation; international considerations; and political economy. Various illustrations of the theory are provided, with two detailed applications to climate change and transport policy, specifically congestion and 'safety pricing'. Copyright 2006, Oxford University Press.

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Article provided by Oxford University Press in its journal Oxford Review of Economic Policy.

Volume (Year): 22 (2006)
Issue (Month): 2 (Summer)
Pages: 226-247

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Handle: RePEc:oup:oxford:v:22:y:2006:i:2:p:226-247
Contact details of provider: Web page: http://oxrep.oupjournals.org/

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