Prices vs. Quantities: The Irrelevance of Irreversibility

34 Pages Posted: 29 Jan 1999

See all articles by Fridrik Mar Baldursson

Fridrik Mar Baldursson

Reykjavik University

Nils-Henrik M. von der Fehr

University of Oslo - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: January 22, 1999

Abstract

We explore the efficacy of price and quantity controls in a dynamic set up in which the decisions of some agents are irreversible. We demonstrate that the assumption of irreversibility improves the performance of a tax relative that of a system of tradable quotas and significantly alters the equilibrium behavior of agents. We nevertheless conclude that taking account of the fact that agents' decisions may be irreversible does not lead to policy implications significantly different from those reached in a simpler model in which irreversibility is ignored.

JEL Classification: D81, D9, H23, L51, Q28, Q38

Suggested Citation

Baldursson, Fridrik Mar and von der Fehr, Nils-Henrik M., Prices vs. Quantities: The Irrelevance of Irreversibility (January 22, 1999). Available at SSRN: https://ssrn.com/abstract=147257 or http://dx.doi.org/10.2139/ssrn.147257

Fridrik Mar Baldursson (Contact Author)

Reykjavik University ( email )

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Iceland
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HOME PAGE: http://www.ru.is/starfsfolk/fmb

Nils-Henrik M. Von der Fehr

University of Oslo - Department of Economics ( email )

P.O. Box 1095 Blindern
N-0317 Oslo
Norway
+47 22 85 51 40 (Phone)
+47 22 85 50 35 (Fax)

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