Price versus tradable quantity regulation. Uncertainty and endogenous technology choice
This paper shows that tradable emissions permits and an emissions tax have a risk-related technology choice effect. We first examine the first- and second-order moments in the probability distributions of optimal abatement and production under the two instruments. The two instruments will, in general, lead to different expected aggregate production levels when technology choice is endogenous, given that regulation is designed to induce equal expected aggregate emissions. Moreover, either regulatory approach may induce larger variance in optimal production and optimal abatement levels, depending on the specification of the stochastic variables. Finally, because firms’ valuation of a flexible technology increases if the variance in abatement is inflated and vice versa, either of the two instruments may induce the most flexible technology. Specifically, a tax encourages the most flexibility if and only if abatement costs and the equilibrium permit price have sufficiently strong positive covariance compared with the variance in the price on the good produced.
|Date of creation:||Jan 2011|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (+47) 21 09 00 00
Fax: (+47) 21 09 49 73
Web page: http://www.ssb.no/en/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Hoel, Michael & Karp, Larry, 2001.
"Taxes versus Quotas for a Stock Pollutant,"
Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series
qt5fx9p7kf, Department of Agricultural & Resource Economics, UC Berkeley.
When requesting a correction, please mention this item's handle: RePEc:ssb:dispap:643. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (J Bruusgaard)
If references are entirely missing, you can add them using this form.