Scandinavian Working Papers in Economics

Working Papers in Economics,
University of Gothenburg, Department of Economics

No 442: Taxes, Permits and Costly Policy Response to Technological Change

Jessica Coria () and Magnus Hennlock ()
Additional contact information
Jessica Coria: Department of Economics, School of Business, Economics and Law, Göteborg University, Postal: Box 640, SE 40530 GÖTEBORG
Magnus Hennlock: Department of Economics, School of Business, Economics and Law, Göteborg University, Postal: Box 640, SE 40530 GÖTEBORG

Abstract: In this paper we analyze the e ects of the choice of price (taxes) versus quantity (tradable permits) instruments on the policy response to technological change. We show that if policy responses incur transactional and political adjustment costs, environmental targets are less likely to be adjusted under tradable per- mits than under emission taxes. This implies that the total level of abatement over time might remain unchanged under tradable permits while it will increase under emission taxes.

Keywords: Environmental Taxes; Tradable Permits; Technology Adoption; Policy Adjustment; Regulatory Costs

JEL-codes: H82; O32; O33; Q52; Q55; Q58

40 pages, May 10, 2010

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