Prices vs. quantities : technology choice, uncertainty and welfare

Abstract

This paper shows that tradable emissions permits and an emissions tax affect the firms' technology choice differently under uncertainty. A tax encourages the most flexible technology if and only if stochastic costs and the equilibrium permit price have sufficiently strong positive covariance, compared with the variance in consumer demand for the good produced. Moreover, the firms' technology choices are socially optimal under tradable emissions permits, but not under an emissions tax. Hence, modeling endogenous technology choice provides an argument in favor of tradable emissions permits as compared with emissions taxes. Keywords: Regulation; Technology choice; Welfare; Uncertainty; Investment. ----- Sammendrag: Artikkelen viser at omsettbare utslippskvoter og en avgift på utslipp påvirker bedrifters teknologivalg ulikt under usikkerhet. Bedriftene velger den samfunnsøkonomisk optimale teknologien under kvotehandel, men ikke under en avgift. Modellering av endogent teknologivalg gir dermed et argument for omsettbare utslippskvoter sammenliknet med en avgift på utslipp.