Prices vs. quantities: Public finance and the choice of regulatory instruments |
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Authors: | Fridrik M Baldursson Nils-Henrik M von der Fehr |
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Institution: | a Reykjavik University, Iceland b University of Oslo, Norway |
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Abstract: | Since Montgomery 1972. Markets in licenses and efficient pollution control programs. Journal of Economic Theory 5, 395-418] and Weitzman 1974. Prices vs. quantities. Review of Economic Studies 41, 477-491], it has generally been assumed that, in a full-information setting, tradable quotas and taxes are equivalent regulatory instruments. We demonstrate that, if the government is movitated by public-finance concerns, this equivalence holds only if quotas are short lived. Moreover, the government prefers quotas with the shortest possible lifetime, or, what is equivalent in our setting, taxes. |
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Keywords: | H2 L51 Q28 Q38 |
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