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Regulating Stock Externalities

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  • Reyer Gerlagh
  • Roweno J.R.K. Heijmans

Abstract

We develop a dynamic regulation game for a stock externality under asymmetric information and future market uncertainty. Within this framework, regulation is characterized as the implementation of a welfare-maximization program conditional on informational constraints. We identify the most general executable programs and find these yield simple and intuitive time-consistent policy rules that implement the stochastic first best as long as a future market exists. We apply our theory to carbon dioxide emissions trading schemes and find substantial welfare gains are possible, compared to current practices.

Suggested Citation

  • Reyer Gerlagh & Roweno J.R.K. Heijmans, 2018. "Regulating Stock Externalities," CESifo Working Paper Series 7383, CESifo.
    • Handle: RePEc:ces:ceswps:_7383
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    References listed on IDEAS

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    Cited by:

    1. Reyer Gerlagh & Roweno J. R. K. Heijmans & Knut Einar Rosendahl, 2020. "COVID-19 Tests the Market Stability Reserve," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 76(4), pages 855-865, August.
    2. Gu, Tianqi & Kim, Inhi & Currie, Graham, 2019. "To be or not to be dockless: Empirical analysis of dockless bikeshare development in China," Transportation Research Part A: Policy and Practice, Elsevier, vol. 119(C), pages 122-147.
    3. Ulrik Beck & Peter K. Kruse-Andersen, 2020. "Endogenizing the Cap in a Cap-and-Trade System: Assessing the Agreement on EU ETS Phase 4," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 77(4), pages 781-811, December.
    4. Sandra Bestakova, 2019. "The Influence Of Short-Term Rental On Rental Housing Prices In Prague," Proceedings of Business and Management Conferences 8512235, International Institute of Social and Economic Sciences.
    5. Olli-Pekka Kuusela & Jussi Lintunen, 2020. "A Cap-and-Trade Commitment Policy with Allowance Banking," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 75(3), pages 421-455, March.
    6. Liao, Rose C. & Loureiro, Gilberto & Taboada, Alvaro G., 2022. "Gender quotas and bank risk," Journal of Financial Intermediation, Elsevier, vol. 52(C).
    7. Reyer Gerlagh & Roweno J R K Heijmans & Knut Einar Rosendahl, 2021. "An endogenous emissions cap produces a green paradox [Combining price and quantity controls under partitioned environmental regulation]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 36(107), pages 485-522.

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    More about this item

    Keywords

    asymmetric information; regulatory instruments; policy updating; emission trading; pollution; climate change;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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