Topics in Public Policy

We consider three different examples of public policy selection. Section 5.1 develops an info-gap robustness analysis of welfare considerations in the choice between imposing a limit on pollution emission or imposing a tax on emissions. The marginal costs and benefits are uncertain to the regulatory agency, and emissions quotas are traded in a competitive market. In section 5.2 we study the policy choices of a regulator responsible for enforcement of pollution limits. The regulator chooses the number of emission permits traded in a competitive market, the audit frequencies of the firms, and the allocation of enforcement resources. Firms are distinguished according to their costs of abatement, which are uncertain to the regulator. Non-proportional “profiling” audit and allocation strategies are examined. Section 5.3 studies policy choices regarding long-range economic impacts of climate change which may result from industrial emission of greenhouse gases. The potential for drastic economic impact of global warming motivates strong abatement measurements, while the great uncertainties in the processes motivates extensive research. We study the robustness implications of the policy maker’s choices between abatement and research.