Scandinavian Working Papers in Economics
Memorandum,
Oslo University, Department of Economics
No 01/2002: Prices vs quantitities: the case of risk averse agents
Fridrik M. Baldursson () and Nils-Henrik M von der Fehr ()
Additional contact information
Fridrik M. Baldursson: University of Iceland, Postal: Suðurgata, 101 Reykjavík, IS-ICELAND
Nils-Henrik M von der Fehr: Dept. of Economics, University of Oslo, Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway
Abstract: We explore the efficacy of price and quantity controls as environmental policy instruments in a stochastic setting in which agents are risk averse. We demonstrate that the assumption of risk aversion may improve the performance of a tax relative to that of a system of tradable quotas, and that restricting quota trade may enhance efficiency even though risk aversion in itself limits volumes of trade. The government may be able to improve the performance of a tradable quota system by judicious choice of distribution and amount of initial quotas and by trading pro-actively in the quota market.
Keywords: regulation; effluent taxes; tradable quotas; uncertainty; risk aversion; environmental management
JEL-codes: D81; H23; L51; Q28; Q38
25 pages, February 21, 2002
Full text files
Memo-01-2002.pdf
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