EconPapers    
Economics at your fingertips  
 

Prices vs. Quantities with fiscal cushioning

Moritz Rohling and Markus Ohndorf ()

Resource and Energy Economics, 2012, vol. 34, issue 2, 169-187

Abstract: Enforcement of international environmental quantity regulations (e.g. tradable pollution permits) is often expected to be stricter than that of price regulations (e.g. emission taxes). While both instruments provide opportunities for misrepresenting actual pollution, enforcement of international price-based instruments is additionally hampered by potential fiscal cushioning, i.e. an adjustment of domestic fiscal policies offsetting the tax incentive to reduce emission reductions. The present paper extends the formal debate on Prices vs. Quantities by including the risk of fiscal cushioning. We find the level of the marginal benefit curve and the variance of costs become key elements for instrument choice and can render quantity regulations strictly preferable. Remarkably, in the latter case, the slopes of the marginal curves do not affect optimal instrument choice. Numerical calculations, using data taken from the international climate policy context, support the potential dominance of quantity regulations found in our formal analysis.

Keywords: Instrument choice; Incomplete enforcement; Uncertainty; Environmental regulation (search for similar items in EconPapers)
JEL-codes: D8 L5 Q58 K42 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6) Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0928765511000637
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Prices vs. Quantities with Fiscal Cushioning (2010) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:resene:v:34:y:2012:i:2:p:169-187

DOI: 10.1016/j.reseneeco.2011.10.004

Access Statistics for this article

Resource and Energy Economics is currently edited by J. F. Shogren and S. Smulders

More articles in Resource and Energy Economics from Elsevier
Bibliographic data for series maintained by Nithya Sathishkumar ().

 
Page updated 2021-04-18
Handle: RePEc:eee:resene:v:34:y:2012:i:2:p:169-187