The Weitzman price corner

Andrew L Goodkind, Jay S Coggins

Research output: Contribution to journalArticle

7 Scopus citations

Abstract

The standard theoretical approach to comparing price and quantity policies is strictly interior. We extend the comparison to account for the possibility of corner outcomes, where a polluting industry responds to a tax by abating either completely or not at all. We show that, when the uncertainty in marginal costs is high, the inclusion of corner outcomes confers an extra and unnoticed advantage upon an emissions tax. In situations where the standard approach would recommend a quantity policy, the possibility of corners can reverse that recommendation.

Original languageEnglish (US)
Pages (from-to)1-12
Number of pages12
JournalJournal of Environmental Economics and Management
Volume73
DOIs
StatePublished - Sep 1 2015

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Keywords

  • Environmental policy
  • Prices versus quantities

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