TY  - JOUR
AU  - Keohane,Nathaniel O.
AU  - Roy,Benjamin Van
AU  - Zeckhauser,Richard J.
TI  - Controlling Stocks and Flows to Promote Quality: The Environment, With Applications to Physical and Human Capital
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 7727
PY  - 2000
Y2  - June 2000
UR  - http://www.nber.org/papers/w7727
L1  - http://www.nber.org/papers/w7727.pdf
N1  - Author contact info:
Nathaniel Keohane
Environmental Defense Fund
E-Mail: nkeohane@environmentaldefense.org

Benjamin Van Roy
Mangagement Science and Engineering
Stanford University
Terman 315
Stanford, CA 94305-4026
Tel: 650/725-0544
Fax: 650/723-4107
E-Mail: bvr@stanford.edu

Richard J. Zeckhauser
John F. Kennedy School of Government
Harvard University
79 John F. Kennedy Street
Cambridge, MA  02138
Tel: 617/495-1174
Fax: 617/384-9340
E-Mail: richard_zeckhauser@harvard.edu
AB  - Our analysis melds two traditional approaches to promoting quality.  The first is restoring the stock of quality.  The second is curbing its flow of deterioration.  Although both approaches are widely used in real world settings, analytic models have tended to focus on one strategy or the other. We consider a class of problems, which we call  SFQ' problems, in which both stocks and flows can be controlled to promote quality.  We develop our results in the context of environmental quality, drawing on real-world examples from atomic wastes to zebra mussels.  But the lessons are general, and we show how they apply to promoting the quality of both physical and human capital. We first study optimal policies in the limiting cases when only abatement or restoration is possible.  We then focus on the full SFQ world, where both approaches can be used.  We show that the optimal policy employs both instruments.  Moreover, when combined optimally, neither strategy takes the form it would in the absence of the other.
ER  -