Regulation versus Taxation

Regulation versus Taxation. Alberto Alesina, September 16, 2013, Paper. "We study which policy tool and at what level a majority chooses in order to reduce activities with negative externalities. We consider three instruments: a rule that sets an upper limit to the activity which produces the negative externality, a quota that forces a proportional reduction of the activity, and a proportional tax on it. For all instruments the majority chooses levels which are too restrictive when the activity is performed mainly by a small fraction..."