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Optimal Mix of Price and Quantity Regulation under Uncertainty

Listed author(s):
  • Mandell, Svante

    (Dept. of Economics, Stockholm University)

This paper takes on the issue of ‘Prices vs. Quantities’, see Weitzman (1974), applied to environmental regulations under uncertainty. It is shown that, from an efficiency point of view, it is generally preferable to divide the economy into two parts, one regulated through a tax and the other through cap-and-trade, rather than letting it be subject to either of these regulation mechanisms. This may be so even when the latter alternatives are cost effective while the former is not. Particular interest is devoted to determining the optimal size of each sector. Generally, a steeper marginal abatement cost function relative to the marginal abatement benefit function implies that a larger part of the economy should be taxed.

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Paper provided by Stockholm University, Department of Economics in its series Research Papers in Economics with number 2004:12.

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Length: 19 pages
Date of creation: Sep 2004
Handle: RePEc:hhs:sunrpe:2004_0012
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Department of Economics, Stockholm, S-106 91 Stockholm, Sweden

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