Regulating Global Externalities
CentER Discussion Paper Series No. 2019-001
22 Pages Posted: 25 Jan 2019
Date Written: January 7, 2019
The question in which we are interested is how a market inhabited by multiple agents, about whom we are differentially uncertain, and who trade goods the use of which imposes a negative effect on others, is to be ideally regulated. We show that a priori asymmetric uncertainty, when combined with a posteriori observed outcomes, is a rich source of information that can be used to reduce aggregate uncertainty. The observation implies that whereas asymmetric information usually entails a cost on welfare, it can help achieve greater efficiency in regulation.
Keywords: asymmetric information, regulatory instruments, policy updating, asymmetric uncertainty, decision making under uncertainty
JEL Classification: D82, D83, H23
Suggested Citation: Suggested Citation