Governments Can Boost Pollution Reduction by Capping Emissions Instead of Taxing
The article compares emissions taxes and quotas in a scenario where regulators and firms have different information about abatement costs. Firms' investment decisions impact their future costs. Quotas lead to efficient investment decisions, while taxes do not in most cases. However, for a specific type of scenario, both policies are efficient. Numerical analysis shows that taxes have some advantages in this case.