Prices vs. quantities with incomplete enforcement
This paper extends Weitzman's (1974) "Prices vs. Quantities" to allow for incomplete enforcement. Whether the regulator uses prices (e.g., taxes) or quantities (e.g., tradeable quotas), a first-best design is always inefficient in the presence of incomplete enforcement. A second-best...
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| Format: | Working Paper |
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MIT Center for Energy and Environmental Policy Research
2009
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| Online Access: | http://hdl.handle.net/1721.1/45094 |
| _version_ | 1826205748624883712 |
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| author | Montero, Juan-Pablo |
| author2 | Massachusetts Institute of Technology. Center for Energy and Environmental Policy Research. |
| author_facet | Massachusetts Institute of Technology. Center for Energy and Environmental Policy Research. Montero, Juan-Pablo |
| author_sort | Montero, Juan-Pablo |
| collection | MIT |
| description | This paper extends Weitzman's (1974) "Prices vs. Quantities" to allow for incomplete enforcement. Whether the regulator uses prices (e.g., taxes) or quantities (e.g., tradeable quotas), a first-best design is always inefficient in the presence of incomplete enforcement. A second-best design that incorporates incomplete enforcement, and where cost and benefit curves are known with certainty, can be implemented equally well with either instrument. If benefit and cost curves are uncertain, however, a quantity instrument performs better than a price instrument. In fact, if the slopes of the marginal cost and marginal benefit curves are equal, quantities are always preferred over prices. Results are consistent to alternative enforcement policies. |
| first_indexed | 2024-09-23T13:18:09Z |
| format | Working Paper |
| id | mit-1721.1/45094 |
| institution | Massachusetts Institute of Technology |
| last_indexed | 2024-09-23T13:18:09Z |
| publishDate | 2009 |
| publisher | MIT Center for Energy and Environmental Policy Research |
| record_format | dspace |
| spelling | mit-1721.1/450942019-04-10T14:52:27Z Prices vs. quantities with incomplete enforcement Montero, Juan-Pablo Massachusetts Institute of Technology. Center for Energy and Environmental Policy Research. This paper extends Weitzman's (1974) "Prices vs. Quantities" to allow for incomplete enforcement. Whether the regulator uses prices (e.g., taxes) or quantities (e.g., tradeable quotas), a first-best design is always inefficient in the presence of incomplete enforcement. A second-best design that incorporates incomplete enforcement, and where cost and benefit curves are known with certainty, can be implemented equally well with either instrument. If benefit and cost curves are uncertain, however, a quantity instrument performs better than a price instrument. In fact, if the slopes of the marginal cost and marginal benefit curves are equal, quantities are always preferred over prices. Results are consistent to alternative enforcement policies. Supported by the MIT Center for Energy and Environmental Policy Research. 2009-04-03T17:08:35Z 2009-04-03T17:08:35Z 1999 Working Paper 99009 http://hdl.handle.net/1721.1/45094 52331281 MIT-CEEPR (Series) ; 99-009WP. 28 p application/pdf MIT Center for Energy and Environmental Policy Research |
| spellingShingle | Montero, Juan-Pablo Prices vs. quantities with incomplete enforcement |
| title | Prices vs. quantities with incomplete enforcement |
| title_full | Prices vs. quantities with incomplete enforcement |
| title_fullStr | Prices vs. quantities with incomplete enforcement |
| title_full_unstemmed | Prices vs. quantities with incomplete enforcement |
| title_short | Prices vs. quantities with incomplete enforcement |
| title_sort | prices vs quantities with incomplete enforcement |
| url | http://hdl.handle.net/1721.1/45094 |
| work_keys_str_mv | AT monterojuanpablo pricesvsquantitieswithincompleteenforcement |