Externality Control and Endogenous Market Structure under Uncertainty: the Price vs. Quantity dilemma

Luca Di Corato () and Yishay Maoz
Additional contact information
Luca Di Corato: Department of Economics, Ca' Foscari University of Venice

No 2022: 13, Working Papers from Department of Economics, University of Venice "Ca' Foscari"

Abstract: In a competitive industry where production entails a negative externality, a welfare-maximizing regulator considers, as control instruments, setting a cap on the industry output or levying an output tax. We embed this scenario within a dynamic setup where market demand is stochastic and market entry is irreversible. We firstly determine the industry equilibrium under each policy and then determine the cap level and the tax rate which maximize welfare in each case. We show that a first-best outcome can be achieved through the tax policy while the cap policy may only qualify as a second-best alternative.

Keywords: Investment; Uncertainty; Caps; Taxes; Competition; Externalities; Welfare (search for similar items in EconPapers)
JEL-codes: C61 D41 D62 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2022
New Economics Papers: this item is included in nep-com and nep-ind
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.unive.it/web/fileadmin/user_upload/dip ... orato_moaz_13_22.pdf First version, anno (application/pdf)

Related works:
Journal Article: Externality control and endogenous market structure under uncertainty: The price vs. quantity dilemma (2023)
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:ven:wpaper:2022:13

Access Statistics for this paper

More papers in Working Papers from Department of Economics, University of Venice "Ca' Foscari" Contact information at EDIRC.
Bibliographic data for series maintained by Sassano Sonia ().