Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/118066
Authors: 
Quirion, Philippe
Year of Publication: 
2003
Series/Report no.: 
Nota di Lavoro, Fondazione Eni Enrico Mattei 33.2003
Abstract: 
There is a tendency among policy-makers and industry lobbyists toward "specific", "relative" or "output-based" quotas, i.e., freely distributed to firms proportionally to their output. With a stochastic analytical model, we demonstrate that relative quotas are dominated either by absolute quotas or by price instruments as regards expected social cost. Furthermore, price instruments entail a lower expected compliance cost than relative quotas. Why, then, do industry lobbyists favour quantity instruments over price instruments? A possible explanation is that if the industry anticipates that the State will underestimate output and overestimate the MAC curve slope, it has an interest in defending relative quotas. The problem is that in such a case, both the environmental damage and the social cost are higher with relative quotas than with absolute ones. The choice of relative quotas over price instruments or absolute quotas may thus be a case of regulatory capture, to use Stigler's vocabulary.
Subjects: 
Uncertainty
policy choice
environmental taxes
tradable permits
regulatory capture
JEL: 
D81
Q25
Q28
Document Type: 
Working Paper

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