Prices Versus Quantities: Stock Pollution Control with Repeated Choice of the Instrument

Abstract

One examines strategies of pollution control through choices between taxes and tradable permits, supposed to be decided at several time periods t1, t2, . . . , tI. At each of these time periods, the choice depends on the solution of a dynamic programming problem involving the expectations of the polluting factor of production function z(t) and the pollutant stock function S(t). According to coefficients of these two functions in the dynamic problem, it is shown under a broad functional setting that permits are decided for a while, followed by decisions of taxes for all the remaining periods. Finite (I < infinity), as well as infinite (I = infinity) horizon is considered.