Uncertainty
Slides [link]Lecture 1
Prices vs Quantities
Required
Additional material:
- Richard Tol video on price vs quantities.
- Washington Post article on Marty Weitzman’s contributions to environmental economics.
Key Points
- With no uncertainty, a tax is equivalent to an equally stringent cap-and-trade program
- In a seminal paper, Marty Weitzman demonstrated that the two are not equivalent if costs are uncertain, but are equivalent if only benefits are uncertain.
- The "Weitzman" rule says that if MB is steeper than MC, a quantity instrument will be preferred; and if MC is steeper than MB, a price instrument will be preferred.