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Prices versus Quantities across Jurisdictions

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  • Torben K. Mideksa
  • Martin L. Weitzman

Abstract

We extend the standard "prices versus quantities" framework for pollution control to cover multiple heterogeneous jurisdictions interacting strategically with each other. When multi-jurisdictional externalities are present and the uncertainties among jurisdictions are independent, the regulatory game exhibits a unique subgame perfect equilibrium. For any one jurisdiction, the equilibrium choice of instrument is given by the sign of the original prices versus quantities formula. Thus, it is an optimal strategy for a jurisdiction to choose a price instrument when the slope of its own marginal benefit is less than the slope of its own marginal cost and a quantity instrument when this condition is reversed. The result suggests that the original nonstrategic criterion for the comparative advantage of prices over quantities may have wider applicability to determining instrument choice in a noncooperative strategic environment.

Suggested Citation

  • Torben K. Mideksa & Martin L. Weitzman, 2019. "Prices versus Quantities across Jurisdictions," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 6(5), pages 883-891.
    • Handle: RePEc:ucp:jaerec:doi:10.1086/704493
    DOI: 10.1086/704493
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    Cited by:

    1. Turner, Karen & Alabi, Oluwafisayo & Katris, Antonios & Swales, Kim, 2022. "The importance of labour market responses, competitiveness impacts, and revenue recycling in determining the political economy costs of broad carbon taxation in the UK," Energy Economics, Elsevier, vol. 116(C).
    2. Harstad, Bård & Lancia, Francesco & Russo, Alessia, 2022. "Prices vs. quantities for self-enforcing agreements," Journal of Environmental Economics and Management, Elsevier, vol. 111(C).
    3. Carlos Hervés-Beloso & Francisco Martínez-Concha, 2023. "Coasian rights in a cap-and-trade mechanism with damage compensations," European Journal of Law and Economics, Springer, vol. 56(3), pages 425-441, December.
    4. Jihad C. Elnaboulsi & Wassim Daher & Yiğit Sağlam, 2023. "Environmental taxation, information precision, and information sharing," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 25(2), pages 301-341, April.

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