Prices Versus Quantities Versus Hybrids in the Presence of Co-pollutants
John K. Stranlund () and
Insung Son ()
Additional contact information
John K. Stranlund: University of Massachusetts-Amherst
Insung Son: Korea Energy Economics Institute
Environmental & Resource Economics, 2019, vol. 73, issue 2, 353-384
Abstract We investigate the optimal regulation of a pollutant given its abatement interaction with another pollutant under asymmetric information about firms’ abatement costs. We take a policy-relevant, second-best approach by assuming that the co-pollutant is regulated exogenously, but perhaps not efficiently. Our focus is on optimal policy choice in this setting, and we derive rules for determining whether a pollutant should be regulated with an emissions tax, an emissions market, or a market with price controls, given the regulation of its co-pollutant. We find that the policy choice for a pollutant is unaffected by its interaction with a co-pollutant that is controlled with a fixed number of tradable permits, because changes in emissions of the primary pollutant do not affect aggregate emissions of the co-pollutant. However, when a co-pollutant is controlled with a tax, the policy choice for the primary pollutant must account for its effect on expected co-pollutant damage through changes in the variance of co-pollutant emissions. Consequently, standard conclusions about the environmental policy choice problem must be modified in this case. Our results have important implications for designing policies for greenhouse gases under uncertainty.
Keywords: Emissions trading; Emissions taxes; Cap-and-trade; Uncertainty; Price controls; Hybrid policies; Prices versus quantities (search for similar items in EconPapers)
JEL-codes: L51 Q58 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
http://link.springer.com/10.1007/s10640-018-0266-4 Abstract (text/html)
Access to the full text of the articles in this series is restricted.
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:kap:enreec:v:73:y:2019:i:2:d:10.1007_s10640-018-0266-4
Ordering information: This journal article can be ordered from
http://www.springer. ... al/journal/10640/PS2
Access Statistics for this article
Environmental & Resource Economics is currently edited by Ian J. Bateman
More articles in Environmental & Resource Economics from Springer, European Association of Environmental and Resource Economists Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla ().