Working Paper: NBER ID: w16120
Authors: Roberton C. Williams III
Abstract: This paper considers the question of under what circumstances a new environmental regulation should "phase in" gradually over time, rather than being immediately implemented at full force. The paper focuses particularly on climate policy, though its insights are more general. It shows that while adjustment costs provide a strong efficiency argument for phasing in a quantity-based regulation (or allowing intertemporal flexibility that creates the equivalent of a phase-in), this argument does not apply for price-based regulation. Indeed, in many cases, it will be more efficient to do just the opposite, setting an initially very high emissions price that then falls as the policy phases in. This difference in results comes not from any fundamental difference between price and quantity policies: under either policy, the efficient quantity of abatement rises over time, while the efficient price stays constant or even falls. But other considerations, such as distributional concerns or monitoring and enforcement issues, may still argue for a gradual phase-in even for a price-based policy.
Keywords: No keywords provided
JEL Codes: D62; H23; Q52; Q54; Q58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| adjustment costs (J30) | gradual phase-in of quantity-based regulations (L51) |
| initially high emissions price (Q31) | more efficient regulatory outcome over time (G18) |
| efficient quantity of abatement rises over time under both policies (Q52) | efficient price may remain constant or decrease (D41) |