Prices vs. quantities: Technology choice, uncertainty and welfare

Halvor Briseid Storrøsten ()
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Halvor Briseid Storrøsten: Statistics Norway, https://www.ssb.no/en/forskning/ansatte

Discussion Papers from Statistics Norway, Research Department

Abstract: This paper shows that tradable emissions permits and an emissions tax affect the firms' technology choice differently under uncertainty. A tax encourages the most flexible technology if and only if stochastic costs and the equilibrium permit price have sufficiently strong positive covariance, compared with the variance in consumer demand for the good produced. Moreover, the firms' technology choices are socially optimal under tradable emissions permits, but not under an emissions tax. Hence, modeling endogenous technology choice provides an argument in favor of tradable emissions permits as compared with emissions taxes.

Keywords: Regulation; Technology choice; Welfare; Uncertainty; Investment. (search for similar items in EconPapers)
JEL-codes: H23 Q55 Q58 (search for similar items in EconPapers)
Date: 2012-02
New Economics Papers: this item is included in nep-ene, nep-pub and nep-reg
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