Prices vs quantities with risk aversion

• 成果类型: Article
• 署名作者: Schlee, Edward E.
• 署名单位: Arizona State University; Arizona State University-Tempe
• 刊物名称: JOURNAL OF PUBLIC ECONOMICS
• ISSN/ISSBN: 0047-2727
• DOI: 10.1016/j.jpubeco.2025.105463
• 发表日期: 2025
• 关键词: Public/environmental goods; Prices vs quantities; Expected surplus; risk aversion; Benefit uncertainty

摘要

Weitzman (1974) asks whether we should regulate a good by fixing quantity or by fixing price when cost and benefit are uncertain. His welfare criterion-expected aggregate surplus-tacitly imposes two strong quasilinearity assumptions on a consumer's preferences: neutrality with respect to income risk; and absence of income effects on the valuation of the good. Both are matters of first-order importance for the evaluation of allocations under uncertainty. Here I ask how risk aversion affects the choice between the two when the regulated good is a public good. I give conditions for welfare-in the form of the sum of certainty equivalents-to be higher for a fixed price; the conditions allow arbitrarily-high levels of risk aversion, even though consumers bear no uncertainty about quantity or income with a fixed quantity. The conclusion depends crucially on benefit uncertainty, present but irrelevant in Weitzman. An unintended consequence is a surprising new argument against quantity regulation: risk aversion.