The Most Politically Popular Regulation Under Asymmetric Information

26 Pages Posted: 31 Oct 2013

See all articles by Jongmin Yu

Jongmin Yu

Hongik University - Department of Economics

Date Written: October 29, 2013

Abstract

Choice of regulation is an important issue in policy making. In the environmental field, the polluting industries are faced with regulation and costly abatement. We discuss a choice between two elements – an emission cap and a penalty rate − as regulation instruments and analyze a situation in which both a regulator and the polluting industry seek to minimize their costs where emissions are uncertain. A regulator suggests a string of efficient policy pairs that minimize social costs, and an industry can then choose one of the efficient policies available in order to minimize compliance costs; hence, a regulator can determine the most politically feasible regulation and satisfy efficiency conditions at the same time. We show asymmetric expectations on uncertain emissions that affect the choice of the efficient and politically feasible policy. This paper aims to present a policy that satisfies both a regulator and a regulated party.

Keywords: emission trading, price and quantity, hybrid emission control, climate change, policy instrument choice

JEL Classification: L51, Q28

Suggested Citation

Yu, Jongmin, The Most Politically Popular Regulation Under Asymmetric Information (October 29, 2013). Available at SSRN: https://ssrn.com/abstract=2347149 or http://dx.doi.org/10.2139/ssrn.2347149

Jongmin Yu (Contact Author)

Hongik University - Department of Economics ( email )

Seoul
Korea, Republic of (South Korea)

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