The Weitzman price corner

Andrew Goodkind and Jay S. Coggins

Journal of Environmental Economics and Management, 2015, vol. 73, issue C, 1-12

Abstract: The standard theoretical approach to comparing price and quantity policies is strictly interior. We extend the comparison to account for the possibility of corner outcomes, where a polluting industry responds to a tax by abating either completely or not at all. We show that, when the uncertainty in marginal costs is high, the inclusion of corner outcomes confers an extra and unnoticed advantage upon an emissions tax. In situations where the standard approach would recommend a quantity policy, the possibility of corners can reverse that recommendation.

Keywords: Environmental policy; Prices versus quantities (search for similar items in EconPapers)
JEL-codes: I18 Q50 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeeman:v:73:y:2015:i:c:p:1-12

DOI: 10.1016/j.jeem.2015.06.001

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