What question did this study set out to answer?

Determine whether price mechanisms (such as taxes) or quantitative controls (such as quotas) yield higher expected social welfare when planning under cost uncertainty.

October 1, 1974The Review of Economic Studies

Prices vs. Quantities

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Determine whether price mechanisms (such as taxes) or quantitative controls (such as quotas) yield higher expected social welfare when planning under cost uncertainty.
Formulated a mathematical model analyzing expected deadweight loss under quadratic approximations of benefits and costs.
Introduced stochastic disturbance terms reflecting informational asymmetry and cost uncertainty faced by a central regulator.
Identified that prices are superior when marginal benefits are relatively flat compared to marginal costs, as quantity controls risk severe over-allocation or under-allocation costs.
Showed that quantities are preferred when marginal benefits are steep relative to marginal costs, preventing catastrophic damage from threshold effects.
Demonstrated that in the absence of uncertainty, price and quantity controls produce mathematically equivalent allocations.

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Implication

Theoretical analysis demonstrates comparative advantages between price and quantity controls under uncertainty, highlighting how marginal curve slopes determine optimal regulatory policy.

Cite This Study

Martin L. Weitzman (1974) studied this question.

synapsesocial.com/papers/69d814433eff0c9dfaae33c1 https://doi.org/10.2307/2296698

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Implication

Theoretical analysis demonstrates comparative advantages between price and quantity controls under uncertainty, highlighting how marginal curve slopes determine optimal regulatory policy.

Prices vs. Quantities

Key Points

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Discussion

Implication

Cite This Study

Prices vs. Quantities

Key Points

No abstract yet

Discussion

Implication

Cite This Study

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