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Abstract
Invasive insect species represent perhaps one of the most significant potential sources of
economic risk to U.S. agricultural production. Private control of invasive insect species is
likely to be insufficient due to negative externality and weaker-link public good
problems. In this study, we compare a system of Pigouvian taxes with tradable permits
for invasive species control. While the emissions control literature shows that taxes are
preferred to permits under cost uncertainty, invasive-species control involves correlated
cost and benefit uncertainty. Hence, we expect a quantity-based system to be preferred.
Monte Carlo simulations of optimal steady-state outcomes confirm our expectations.