Environmental policy à la carte: Letting firms choose their regulation

Krysiak, Frank C. and Oberauner, Iris M.. (2010) Environmental policy à la carte: Letting firms choose their regulation. Journal of environmental economics and management, Vol. 60. pp. 221-232.

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Official URL: http://edoc.unibas.ch/dok/A5840235

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Under uncertainty, the optimal choice between price and quantity instruments depends on the technology of the regulated firms, which is often private information. We consider an environmental policy that delegates the prices-versus-quantities decision to the firms by offering them the choice between an emissions tax and permit trading. Such an approach is currently used in Swiss climate policy. We provide a detailed characterization of the optimal policy and show that this approach reduces expected social costs compared to a pure tax or permit-trading regime. We demonstrate that an optimal allocation of firms to instruments can be achieved despite substantial informational constraints, and that all firms gain from the introduction of the instrument choice compared to optimally designed single-instrument policies. Furthermore, we discuss the conditions under which this approach is likely to be preferable to a hybrid regulation.
Faculties and Departments:06 Faculty of Business and Economics > Departement Wirtschaftswissenschaften > Professuren Wirtschaftswissenschaften > Umweltökonomie (Krysiak)
UniBasel Contributors:Krysiak, Frank Christian
Item Type:Article, refereed
Article Subtype:Research Article
Publisher:Academic Press
Note:Publication type according to Uni Basel Research Database: Journal article
Last Modified:14 Sep 2012 07:21
Deposited On:14 Sep 2012 07:10

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