Regulation with Budget Constraints Can Dominate Regulation by Price and by Quantity

Linda Cohen () and Amihai Glazer
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Linda Cohen: Department of Economics, University of California-Irvine

No 80903, Working Papers from University of California-Irvine, Department of Economics

Abstract: A government can use several mechanisms to induce firms to reduce pollution. Well studied are regulations by price and by quantity. We consider a third form of regulation -- government allocates a budget to an agency which subsidizes abatement. We demonstrate that uncertainty can make such constrained regulation more efficient than either regulation by quantity or regulation by price. We also show that the optimal budget declines with a mean-preserving spread in the distribution of marginal costs.

Keywords: Regulation; Environmental subsidy; Pollution control (search for similar items in EconPapers)
JEL-codes: H23 Q52 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2008-08
New Economics Papers: this item is included in nep-ene, nep-env, nep-mic, nep-pbe and nep-reg
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Persistent link: https://EconPapers.repec.org/RePEc:irv:wpaper:080903

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