This paper examines the optimal instrument choice to control emissions under uncertainty. A hybrid regulation mechanism is developed that contains cap-and-trade, emissions taxes and socalled safety valves as special cases. This makes it possible to examine optimal policy choice and the resulting...

This paper takes on the issue of ‘Prices vs. Quantities’, see Weitzman (1974), applied to environmental regulations under uncertainty. It is shown that, from an efficiency point of view, it is generally preferable to divide the economy into two parts, one regulated through a tax and the...