Prices vs. Quantities with Banking and Borrowing
نویسنده
چکیده
It seems to be a not uncommonly held view that intertemporal banking and borrowing of tradeable permits might tilt the ‘prices vs. quantities’debate towards looking relatively more favorably upon time-flexible quantities. The present paper shows that this view is incorrect for a natural dynamic extension of the original ‘prices vs. quantities’ information structure, which here allows the firms to know and act upon the realization of uncertain future costs ahead of the regulators. In this banking-andborrowing intertemporal extension, the standard original formula for the comparative advantage of prices over quantities remains valid. The logic and implications of this result are analyzed and discussed. JEL Codes: Q50, Q51, Q52, Q54, Q58
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