Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/233496
Authors: 
Schmidt, Klaus M.
Herweg, Fabian
Year of Publication: 
2021
Series/Report no.: 
Discussion Paper No. 272
Abstract: 
It is widely believed that an environmental tax (price regulation) and cap-and-trade (quantity regulation) are equally efficient in controlling pollution when there is no uncertainty. We show that this is not the case if some consumers (firms, local governments) are morally concerned about pollution and the pollution price is inefficiently low for political reasons. Emissions are lower and material welfare is higher with price regulation. Furthermore, quantity regulation gives rise to dysfunctional incentive and distribution effects. It shifts the burden of adjustment to the poor and discourages voluntary efforts to reduce pollution, while price regulation makes these efforts effective.
Subjects: 
Emissions Trading
Carbon Tax
Climate Change
Prices versusQuantities
Behavioral Industrial Organization
JEL: 
D62
H23
Q52
Q58
Document Type: 
Working Paper

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