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Adoption incentives and environmental policy timing under asymmetric information and strategic firm behaviour

Author

Listed:
  • Alessio D’Amato

    (University of Rome “Tor Vergata”
    SEEDS)

  • Bouwe R. Dijkstra

    (University of Nottingham, Nottingham, United Kingdom, and CESifo)

Abstract

We consider the incentives of a single firm to invest in a cleaner technology under quotas and emission taxation. We assume asymmetric information about the firm’s cost of employing the new technology. Policy is set either before the firm invests (commitment) or after (time consistency). Contrary to the conventional wisdom, we find that with commitment (time consistency), quotas give higher (lower) investment incentives than taxes. With quotas (taxes), commitment generally leads to higher (lower) welfare than time consistency. Under commitment with quadratic abatement costs and environmental damages, a modified Weitzman rule applies and quotas usually lead to higher welfare than taxes.

Suggested Citation

  • Alessio D’Amato & Bouwe R. Dijkstra, 2018. "Adoption incentives and environmental policy timing under asymmetric information and strategic firm behaviour," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 20(1), pages 125-155, January.
    • Handle: RePEc:spr:envpol:v:20:y:2018:i:1:d:10.1007_s10018-017-0187-4
    DOI: 10.1007/s10018-017-0187-4
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    References listed on IDEAS

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    More about this item

    Keywords

    Asymmetric information; Commitment; Time consistency; Emission taxation; Quotas;
    All these keywords.

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy

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