Weitzman P versus Q

1
Weitzman P versus Q

• Two diagrams where the marginal cost curve has a
  smaller (absolute) slope than the marginal
  benefit curve.
• Note that in the case where the uncertainty is
  over the firms marginal cost, the more steep the
  marginal benefit (relative to the marginal cost),
  the more efficient the quota. On the other hand,
  when there is uncertainty about the firms
  marginal benefit, the more steep the marginal
  benefit (relative to marginal cost), the more
  efficient the price instrument.

2
Weitzman P versus Q
MB, MC
MB
(x)
High
EMC(x)
EMB(x)
MB
(x)
Low
C
D
A
B
t
Input
x
(t)
x
(t)
X
Low
High
3
Weitzman - P versus Q
E(MB)
MCHigh
MCLow
A
B
P
C
D
Xlow(P)
X
Xhigh(P)