Regulation by Prices, Quantities, or Both: A Review of Instrument Choice

Cameron Hepburn ()

Oxford Review of Economic Policy, 2006, vol. 22, issue 2, 226-247

Abstract: Choosing appropriate policy instruments is an important part of successful regulation. Once objectives are agreed and suitable targets adopted, policy-makers can employ command-and-control regulation and/or economic instruments, and choose between fixing a price or a quantity. This paper examines the relative advantages of price, quantity, and hybrid instruments according to: their efficiency under uncertainty; the trade-off between credible commitment and flexibility; implementation; international considerations; and political economy. Various illustrations of the theory are provided, with two detailed applications to climate change and transport policy, specifically congestion and 'safety pricing'. Copyright 2006, Oxford University Press.

Date: 2006
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Persistent link: https://EconPapers.repec.org/RePEc:oup:oxford:v:22:y:2006:i:2:p:226-247

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