Memorandum,
Oslo University, Department of Economics

Abstract: We explore the efficacy of price and quantity controls in a dynamic set up in which the decisions of some agents are irreversible. We demonstrate that the assumption of irreversibility improves the performance of a tax relative that of a system of tradable quotas and significantly alters the optimal behavior of agents. We nevertheless conclude that taking account of the fact that agents' decisions may be irreversible does not lead to policy implications significantly different from those reached in a simpler model in which irreversibility is ignored.

Keywords: REGULATION; TAXES; UNCERTAINTY; ENVIRONMENT

JEL-codes: D81; D9; H23; L51; Q28; Q38

32 pages, 1998

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