Environmental and Resource Economics

, Volume 61, Issue 4, pp 463–476 | Cite as

A Note on Correlated Uncertainty and Hybrid Environmental Policies



This note examines the effects of correlated uncertainty between abatement costs and pollution damage on hybrid emissions control policies. In particular, I show how correlated uncertainty affects the structure and performance of control policies that combine permit trading with price controls. Moreover, I show how correlated uncertainty affects the choice between a simple emissions tax versus a hybrid policy. Under correlated uncertainty, constant marginal damage is no longer necessary or sufficient for a tax to be an optimal policy.


Cap-and-trade Correlated uncertainty Emissions trading Emissions taxes Hybrid policies Price controls 

JEL Classification

H23 L51 Q58 


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Copyright information

© Springer Science+Business Media Dordrecht 2014

Authors and Affiliations

  1. 1.Department of Resource EconomicsUniversity of Massachusetts-AmherstAmherstUSA

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