Prices vs. quantities: Public finance and the choice of regulatory instruments

Fridrik Mar Baldursson () and Nils-Henrik M. von der Fehr

European Economic Review, 2008, vol. 52, issue 7, pages 1242-1255

Abstract: Since Montgomery [1972. Markets in licenses and efficient pollution control programs. Journal of Economic Theory 5, 395-418] and Weitzman [1974. Prices vs. quantities. Review of Economic Studies 41, 477-491], it has generally been assumed that, in a full-information setting, tradable quotas and taxes are equivalent regulatory instruments. We demonstrate that, if the government is movitated by public-finance concerns, this equivalence holds only if quotas are short lived. Moreover, the government prefers quotas with the shortest possible lifetime, or, what is equivalent in our setting, taxes.

Keywords: Regulation; Public; finance; Effluent; taxes; Tradable; quotas; Environmental; management (search for similar items in EconPapers)
Date: 2008

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Persistent link: http://EconPapers.repec.org/RePEc:eee:eecrev:v:52:y:2008:i:7:p:1242-1255

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