ABSTRACT
In the previous chapter, i focused on the relative efficiency of policy instruments under economic conditions, including cost or damage heterogeneity, technical progress, and economic growth. In this chapter, I add the condition of uncertainty. If the marginal benefits of pollution control are fairly constant (flat) and the marginal abatement costs are uncertain or change, then the tax will be approximately correct, but the number of permits would need constant adjustment (see Figure 12-3 in Chapter 12). Conversely, if the damages are insignificant below a certain threshold level and then rise steeply above that level, then quantitative permits may be a more appropriate instrument; the exact tax would be hard to estimate, and a continued pressure for more abatement under the threshold would serve no purpose.
