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Stocks & Shocks: A Clarification in the Debate Over Price vs. Quantity Controls for Greenhouse Gases

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dc.contributor.author Parsons, John E.
dc.contributor.author Taschini, Luca
dc.date.accessioned 2011-10-17T15:25:04Z
dc.date.available 2011-10-17T15:25:04Z
dc.date.issued 2011-03
dc.identifier.other 2011-002
dc.identifier.uri http://hdl.handle.net/1721.1/66271
dc.description.abstract We construct two simple examples that help to clarify the role of a key assumption in the analysis of price or quantity controls of greenhouse gases in the presence of uncertain costs. Traditionally much has been made of the fact that greenhouse gases are a stock pollutant, and that therefore the marginal benefit curve must be relatively flat. This fact is said to establish the preference of a price control over a quantity control. The stock pollutant argument is considered dispositive, so that the preference for price controls is categorical. We show that this argument can only be true if the uncertainty about cost is a special form: all shocks are transitory. We show that in the case of permanent shocks, the traditional comparison of marginal benefits vs. marginal costs is mis-measured. The choice between quantity and price controls becomes ambiguous again and depends upon a more difficult measurement of marginal costs and benefits. The simplicity of the examples and the solutions is a major element of the contribution here. The examples are readily accessible and the comparison of results under the alternative assumptions of transitory and permanent shocks is stark. en_US
dc.description.sponsorship Massachusetts Institute of Technology. Center for Energy and Environmental Policy Research en_US
dc.language.iso en_US en_US
dc.publisher MIT Center for Energy and Environmental Policy Research en_US
dc.relation.ispartofseries MIT-CEEPR;2011-002
dc.rights An error occurred on the license name. en
dc.rights.uri An error occurred getting the license - uri. en
dc.title Stocks & Shocks: A Clarification in the Debate Over Price vs. Quantity Controls for Greenhouse Gases en_US
dc.type Working Paper en_US


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