Why do rational politicians choose inefficient policy instruments? Environmental regulation, for example, often takes the form of technology standards and quotas even when cost-effective Pigou taxes are available. To shed light on this puzzle, we present a stochastic game with multiple...

Why do rational politicians choose inefficient policy instruments? Environmental regulation, for example, often takes the form of technology standards and quotas even when cost‐effective Pigou taxes are available. To shed light on this puzzle, we present a stochastic game with multiple...