Regulating Stock Externalities
Reyer Gerlagh and
Roweno J.R.K. Heijmans
No 7383, CESifo Working Paper Series from CESifo Group Munich
We develop a dynamic regulation game for a stock externality under asymmetric information and future market uncertainty. Within this framework, regulation is characterized as the implementation of a welfare-maximization program conditional on informational constraints. We identify the most general executable programs and find these yield simple and intuitive time-consistent policy rules that implement the stochastic first best as long as a future market exists. We apply our theory to carbon dioxide emissions trading schemes and find substantial welfare gains are possible, compared to current practices.
Keywords: asymmetric information; regulatory instruments; policy updating; emission trading; pollution; climate change (search for similar items in EconPapers)
JEL-codes: H23 Q54 Q58 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ene, nep-ore and nep-reg
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