Regulating Stock Externalities

Reyer Gerlagh, Roweno J.R.K. Heijmans

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We develop a dynamic regulation game for a stock externality under asymmetric information and future market uncertainty. Within this framework, regulation is characterized as the implementation of a welfare-maximization program conditional on informational constraints. We identify the most general executable such programs and find these yield simple and intuitive policy rules. We apply our theory to carbon dioxide emissions trading schemes and find substantial welfare gains are possible, compared to current practices.
Original languageEnglish
Place of PublicationTilburg
PublisherCESifo Working Papers
Number of pages46
Publication statusPublished - Dec 2018

Publication series

NameCESifo Working Papers


  • asymmetric information
  • regulatory instruments
  • policy updating
  • emission trading
  • pollution
  • climate change


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