For two decades, environmental economists have generally maintained that benefit uncertainty is irrelevant for choosing between price and quantity instruments, but that cost uncertainty matters, with the identity of the efficient instrument depending upon the relative slopes of the marginal benefit and cost functions. But, in the presence of simultaneous, correlated uncertainty, such policy instrument recommendations may be inappropriate. With plausible values of relevant parameters, the conventional identification of a price instrument will be reversed, to favor instead a quantity instrument. The opposite reversal—from the choice of a quantity instrument to a price instrument—seems less likely to occur.
Barrett, Scott, P Bohm, B Fisher, M Kuroda, J Mubazi, A Shah, and Robert N Stavins. “Policy Instruments to Combat Climate Change.” In Climate Change 1995: Economic and Social Dimensions of Climate Change, Intergovernmental Panel on Climate Change, Second Assessment Report, Working Group III, Chapter 11. Cambridge, England: Cambridge University Press, 1996.ipcc_ar2_chapter_11.pdf