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Implications of nonlinearity in environmental instrument choice

Author

Listed:
  • Kathy Paulson-Gjerde

    (Butler University)

  • Peter Z Grossman

    (Butler University)

Abstract

The classic paper by Weitzman (1974) on environmental instrument choice showed that relative efficiency of a price or quantity instrument depended on the elasticities of the marginal cost and benefit functions. Linear models with additive or multiplicative errors lent support for many of Weitzman's results. This paper investigates nonlinear functions and again shows Weitzman largely correct. Moreover it supports a conjecture he made about the relative efficacy of price versus quantity instruments.

Suggested Citation

  • Kathy Paulson-Gjerde & Peter Z Grossman, 2015. "Implications of nonlinearity in environmental instrument choice," Economics Bulletin, AccessEcon, vol. 35(4), pages 2252-2257.
    • Handle: RePEc:ebl:ecbull:eb-15-00165
    as

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    References listed on IDEAS

    as
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    2. Lawrence H. Goulder & Ian W. H. Parry, 2008. "Instrument Choice in Environmental Policy," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 2(2), pages 152-174, Summer.
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    4. Martin L. Weitzman, 1974. "Prices vs. Quantities," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 41(4), pages 477-491.
    5. Shrestha, Ratna K., 2001. "The choice of environmental policy instruments under correlated uncertainty," Resource and Energy Economics, Elsevier, vol. 23(2), pages 175-185, April.
    6. Watson, William D. & Ridker, Ronald G., 1984. "Losses from effluent taxes and quotas under uncertainty," Journal of Environmental Economics and Management, Elsevier, vol. 11(4), pages 310-326, December.
    7. Adar, Zvi & Griffin, James M., 1976. "Uncertainty and the choice of pollution control instruments," Journal of Environmental Economics and Management, Elsevier, vol. 3(3), pages 178-188, October.
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    More about this item

    Keywords

    Environmental Instrument choice; nonlinearity;

    JEL classification:

    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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