Regulating Stock Externalities

48 Pages Posted: 21 Feb 2019

See all articles by Reyer Gerlagh

Reyer Gerlagh

Tilburg University - Tilburg University School of Economics and Management

Roweno Heijmans

Tilburg University

Date Written: 2018

Abstract

We develop a dynamic regulation game for a stock externality under asymmetric information and future market uncertainty. Within this framework, regulation is characterized as the implementation of a welfare-maximization program conditional on informational constraints. We identify the most general executable programs and find these yield simple and intuitive time-consistent policy rules that implement the stochastic first best as long as a future market exists. We apply our theory to carbon dioxide emissions trading schemes and find substantial welfare gains are possible, compared to current practices.

Keywords: asymmetric information, regulatory instruments, policy updating, emission trading, pollution, climate change

JEL Classification: H230, Q540, Q580

Suggested Citation

Gerlagh, Reyer and Heijmans, Roweno, Regulating Stock Externalities (2018). CESifo Working Paper No. 7383. Available at SSRN: https://ssrn.com/abstract=3338712

Reyer Gerlagh (Contact Author)

Tilburg University - Tilburg University School of Economics and Management ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Roweno Heijmans

Tilburg University ( email )

P.O. Box 90153
Tilburg, DC Noord-Brabant 5000 LE
Netherlands

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
8
Abstract Views
95
PlumX Metrics