This paper examines the linking of price-based and quantity-based provision of a public good by
two parties in the example of pollution control under a global quantity constraint, using a stochastic
partial-equilibrium model. One country chooses a price-based instrument (tax) and trades with
another that lets its emissions price adjust. The expected cost for the price-setting country and the
combined expected cost is higher than if both countries choose a quantity-based instrument, and
the country with the quantity instrument stands to benefit in terms of expected net costs. The
effect increases when the relative size of the country with the price-based constraint increases; and
increases with respect to the degree of correlation in ex-ante uncertain abatement costs. While the
quantity-setting country benefits from lower expected costs in most circumstances, the variance in
cost can be much higher if its costs are correlated with the price-setting country. The optimal ex-ante
tax rate differs from that under quantity-quantity linking. These results have important implications
for instrument choice for the regulation of greenhouse gases and other pollutants and for the design
of international agreements when there are domestic preferences for price regulation. The model is
applicable to situations involving the provision of a fixed quantity of a public good beyond pollution
control.
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