Regulation by prices, quantities, or both: A review of instrument choice

TitleRegulation by prices, quantities, or both: A review of instrument choice
Publication TypeJournal Article
Year of Publication2006
AuthorsHepburn, C
JournalOxford Review of Economic Policy
Volume22
Issue2
Pagination226-247
ISBN Number0266-903X
Abstract

Choosing appropriate policy instruments is an important part of successful regulation. Once objectives are agreed and suitable targets adopted, policy-makers can employ command-and-control regulation and/or economic instruments, and choose between fixing a price or a quantity. This paper examines the relative advantages of price, quantity, and hybrid instruments according to: their efficiency under uncertainty; the trade-off between credible commitment and flexibility; implementation; international considerations; and political economy. Various illustrations of the theory are provided, with two detailed applications to climate change and transport policy, specifically congestion and 'safety pricing'.

DOI10.1093/oxrep/grj014