Prices vs. Quantities with incomplete enforcement and different enforcement probabilities
Regulating inter-country externalities, like climate change, raises various enforcement problems. It is often argued that international pricebased regulations (e.g. emission taxes) are more difficult to enforce than quantity-based regulations (e.g. tradable pollution permits). In this paper, we analyze the relative performance of price-based and quantity-based instruments for cases where costs and benefits are uncertain and enforcement of quantity regimes is stricter than for price-based regimes. We show that under these conditions, instrument choice solely based on the relative slopes of the marginal costs can be inefficient. If enforcement probabilities differ, rational policy choice should also take into account the level of the marginal benefit curve, as well as institutional parameters. In contrast to earlier analyses on Prices vs. Quantities, we find that the difference in welfare for both policy instruments also depends on the variance of the marginal abatement costs. Furthermore, numerical simulations of our stylized model suggest that, for climate policies, quantity-regulations might well be preferable to price-based approaches after all.
|Date of creation:||2010|
|Contact details of provider:|| Web page: http://www.ael.ethz.ch/|
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:zbw:gdec10:24. 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: (ZBW - German National Library of Economics)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.