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Adjustable Quantities

Author

Listed:
  • Alex Dickson

    (Department of Economics, Strathclyde Business School, University of Strathclyde, Glasgow, UK, G4 0QU.)

  • Ian A. MacKenzie

    (School of Economics, University of Queensland)

Abstract

This article investigates the relative efficiency of soft-price (‘allowance reserve’) regulation versus hard-price (‘safety-valve’) regulation in the presence of uncertainty. When policy variables are treated as exogenous the relative efficiency ranking is ambiguous. A small allowance reserve and low trigger price (relative to the expected price on the market) will favor hard-price regulation. This efficiency ranking diminishes as the allowance reserve increases in size (and the trigger price increases). Similar results exist when the regulator is constrained in selecting policy parameters (where the trigger price is chosen given a fixed allowance reserve). If the regulator has an unrestricted choice over policy parameters, soft-price regulation is (weakly) superior. The findings show that the relative efficiency of hybrid mechanisms is crucially dependent on the political economy aspects of the choice of policy parameters.

Suggested Citation

  • Alex Dickson & Ian A. MacKenzie, 2025. "Adjustable Quantities," Discussion Papers Series 669, School of Economics, University of Queensland, Australia.
    • Handle: RePEc:qld:uq2004:669
    as

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    File URL: https://economics.uq.edu.au/files/53343/669.pdf
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    References listed on IDEAS

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    1. Simone Borghesi & Michael Pahle & Grischa Perino & Simon Quemin & Maximilian Willner, 2023. "The Market Stability Reserve in the EU Emissions Trading System: A Critical Review," Annual Review of Resource Economics, Annual Reviews, vol. 15(1), pages 131-152, October.
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    3. Alex Dickson & Ian A. MacKenzie, 2022. "Permit Markets with Political and Market Distortions," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 82(1), pages 227-255, May.
    4. Pizer, William A., 2002. "Combining price and quantity controls to mitigate global climate change," Journal of Public Economics, Elsevier, vol. 85(3), pages 409-434, September.
    5. David F. Perkis & Timothy N. Cason & Wallace E. Tyner, 2016. "An Experimental Investigation of Hard and Soft Price Ceilings in Emissions Permit Markets," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 63(4), pages 703-718, April.
    Full references (including those not matched with items on IDEAS)

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    Keywords

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    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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