Prices vs Quantities: The Case of Risk Averse Agents

23 Pages Posted: 4 Feb 2002

See all articles by Fridrik Mar Baldursson

Fridrik Mar Baldursson

Reykjavik University

Nils-Henrik M. von der Fehr

University of Oslo - Department of Economics

Date Written: Janauary 29, 2002

Abstract

We explore the efficacy of price and quantity controls as environmental policy instruments in a stochastic setting in which agents are risk averse. We demonstrate that the assumption of risk aversion may improve the performance of a tax relative to that of a system of tradable quotas, and that restricting quota trade may enhance efficiency even though risk aversion in itself limits volumes of trade. The government may be able to improve the performance of a tradable quota system by judicious choice of distribution and amount of initial quotas and by trading pro-actively in the quota market.

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

Suggested Citation

Baldursson, Fridrik Mar and von der Fehr, Nils-Henrik M., Prices vs Quantities: The Case of Risk Averse Agents (Janauary 29, 2002). Available at SSRN: https://ssrn.com/abstract=299259 or http://dx.doi.org/10.2139/ssrn.299259

Fridrik Mar Baldursson (Contact Author)

Reykjavik University ( email )

Menntavegur 1
Reykjavik, 101
Iceland
354-8256396 (Phone)
354-5996201 (Fax)

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)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
97
Abstract Views
1,692
rank
360,698
PlumX Metrics