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Cost Heterogeneity and the Potential Savings from Market-Based Policies

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  • Newell, Richard G.
  • Stavins, Robert N.
Abstract
Policy makers and policy analysts are frequently faced with situations where it is unclear whether market-based instruments hold real promise of reducing costs, relative to conventional command-and-control approaches. We develop rules-of-thumb that can be employed with minimal amounts of information to estimate the potential cost savings associated with marketbased policies, with an application to the environmental policy realm. Our hope is that these simple formulae can aid policy analysts and policy makers in the early stages of exploring alternative policy instruments by helping them identify approaches that merit greater attention and more detailed analysis. We illustrate the use of the rules-of-thumb with an application to nitrogen oxides control in the eastern United States.

Suggested Citation

  • Newell, Richard G. & Stavins, Robert N., 2000. "Cost Heterogeneity and the Potential Savings from Market-Based Policies," Discussion Papers 10577, Resources for the Future.
    • Handle: RePEc:ags:rffdps:10577
    DOI: 10.22004/ag.econ.10577
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    More about this item

    Keywords

    Industrial Organization;

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L68 - Industrial Organization - - Industry Studies: Manufacturing - - - Appliances; Furniture; Other Consumer Durables

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