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Adjustable Quantities

Author

Listed:
  • Alex Dickson

    (Department of Economics, Strathclyde Business School, University of Strathclyde, Glasgow, UK, G4 0QU.)

  • Ian A. MacKenzie

    (School of Economics, University of Queensland)

Abstract

This article investigates the relative efficiency of soft-price (‘allowance reserve’) regulation versus hard-price (‘safety-valve’) regulation in the presence of uncertainty. When policy variables are treated as exogenous the relative efficiency ranking is ambiguous. A small allowance reserve and low trigger price (relative to the expected price on the market) will favor hard-price regulation. This efficiency ranking diminishes as the allowance reserve increases in size (and the trigger price increases). Similar results exist when the regulator is constrained in selecting policy parameters (where the trigger price is chosen given a fixed allowance reserve). If the regulator has an unrestricted choice over policy parameters, soft-price regulation is (weakly) superior. The findings show that the relative efficiency of hybrid mechanisms is crucially dependent on the political economy aspects of the choice of policy parameters.

Suggested Citation

  • Alex Dickson & Ian A. MacKenzie, 2025. "Adjustable Quantities," Discussion Papers Series 669, School of Economics, University of Queensland, Australia.
    • Handle: RePEc:qld:uq2004:669
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    File URL: https://economics.uq.edu.au/files/53343/669.pdf
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    More about this item

    Keywords

    allowance reserve; price ceiling; prices versus quantities;
    All these keywords.

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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