Taxes vs. Quotas or Taxes vs. Upper Bounds?
نویسندگان
چکیده
We compare taxes and quotas where a regulator and a non-strategic firm have asymmetric information about a pollution-producing activity. In previous studies, optimal quotas are generally assumed to bind with probability one. We analyze the conditions under which a quota that binds with probability less than one is optimal. A quota that may be slack can be targeted towards some firms whilst allowing others to operate unconstrained. Failure to consider optimal quotas that may be slack overestimates the advantage of taxes over quotas, even in situations where the marginal benefit function is much steeper than the marginal cost function.
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