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Optimal Mix of Price and Quantity Regulation under Uncertainty


  • 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.

Suggested Citation

  • Mandell, Svante, 2004. "Optimal Mix of Price and Quantity Regulation under Uncertainty," Research Papers in Economics 2004:12, Stockholm University, Department of Economics.
  • Handle: RePEc:hhs:sunrpe:2004_0012

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    regulation; uncertainty; emissions tax; tradable permits;

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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