Prices vs. quantities in presence of a second, unpriced, externality
Résumé
We study a situation in which two goods jointly generate an externality but only
one of them is regulated. Unilateral regulation of greenhouse gas emissions and related
carbon leakage is a well known example. We compare tax and quantity instruments
under uncertainty à la Weitzman (1974). Because of the uncertainty surrounding
the unregulated good, the external cost is stochastic with both instruments. Whether
the unregulated good quantity is more or less variable under a tax or under a quota
depends on the degree of substitutability and the correlation between uncertainties
on private valuations. In case of a positive correlation and imperfect substitution, a
tax better stabilize the unregulated good quantity and can therefore dominate a quota
when the slope of the external cost associated to the unregulated good is large. In a
specification, relevant for leakage, it is shown that if uncertainty about the unregulated
good (imports) is large, a tax might be preferable to a quota, regardless of the convexity
of the external cost.
Domaines
Economies et finances
Origine : Fichiers produits par l'(les) auteur(s)
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