TY  - JOUR
AU  - Williams,Roberton
TI  - Prices vs. Quantities vs. Tradable Quantities
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 9283
PY  - 2002
Y2  - October 2002
UR  - http://www.nber.org/papers/w9283
L1  - http://www.nber.org/papers/w9283.pdf
N1  - Author contact info:
Roberton C. Williams, III
Department of Agricultural and Resource Economics
University of Maryland,
Symons Hall
College Park, MD 20742
Tel: 301-405-1284
Fax: 301-314-9091
E-Mail: rwilliams@arec.umd.edu
AB  - This paper extends Weitzman's (1974) seminal paper comparing price and quantity instruments for regulation to consider a third option: tradable quantity regulations, such as tradable permits. Contrary to what prior work has suggested, fixed quantities may be more efficient than tradable quantities if the regulated goods are not perfect substitutes, even when trading ratios are based on the ratio of expected marginal benefits between goods, not simply one-for-one.  Indeed, when benefits are independent across goods, or when the goods are complements, tradable quantities are never the most efficient instrument.  This theory is applied to dynamic pollution problems, and suggests that permit banking should be allowed for stock pollutants, but not for flow pollutants.  These results indicate that many regulations, including the current sulfur dioxide trading program and proposed greenhouse gas regulations, are inefficient.
ER  -