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Profit-enhancing environmental policy: uninformed regulation in an entry-deterrence model

Author

Listed:
  • Ana Espínola-Arredondo

    (Washington State University)

  • Félix Muñoz-García

    (Washington State University)

Abstract

This paper considers a polluting firm, subject to environmental policy, who seeks to deter the entry of potential competitors. We investigate under which conditions firm profits are enhanced by regulation. We show that, contrary to common belief, inefficient firms may support environmental regulation when their production is especially polluting. In addition, we evaluate how this result is affected by the regulator’s prior beliefs accuracy and the environmental damage from pollution.

Suggested Citation

  • Ana Espínola-Arredondo & Félix Muñoz-García, 2016. "Profit-enhancing environmental policy: uninformed regulation in an entry-deterrence model," Journal of Regulatory Economics, Springer, vol. 50(2), pages 146-163, October.
    • Handle: RePEc:kap:regeco:v:50:y:2016:i:2:d:10.1007_s11149-016-9298-2
    DOI: 10.1007/s11149-016-9298-2
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    References listed on IDEAS

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    4. Espínola-Arredondo, Ana & Muñoz-García, Félix, 2013. "When does environmental regulation facilitate entry-deterring practices," Journal of Environmental Economics and Management, Elsevier, vol. 65(1), pages 133-152.
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    Cited by:

    1. Xuexian Gao & Haidong Zheng & Yan Zhang & Naser Golsanami, 2019. "Tax Policy, Environmental Concern and Level of Emission Reduction," Sustainability, MDPI, vol. 11(4), pages 1-17, February.

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    More about this item

    Keywords

    Entry deterrence; Signaling; Environmental policy; Informational advantage; Profits;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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