Prices vs quantitities: the case of risk averse agents
We explore the efficacy of price and quantity controls as environmental policy instruments in a stochastic setting in which agents are risk averse. We demonstrate that the assumption of risk aversion may improve the performance of a tax relative to that of a system of tradable quotas, and that restricting quota trade may enhance efficiency even though risk aversion in itself limits volumes of trade. The government may be able to improve the performance of a tradable quota system by judicious choice of distribution and amount of initial quotas and by trading pro-actively in the quota market.
|Date of creation:||21 Feb 2002|
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- 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.
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"Experience with Market-Based Environmental Policy Instruments,"
Working Paper Series
rwp00-004, Harvard University, John F. Kennedy School of Government.
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in: Behavioral and Distributional Effects of Environmental Policy, pages 281-308
National Bureau of Economic Research, Inc.
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