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Innovation Under the Threat of Stricter Environmental Standards

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Author Info
Olivier Cadot
Bernard Sinclair-Desgagné ()

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Abstract

This paper considers the threat of stricter regulation as a policy instrument to enhance innovation into cleaner technology. It is argued that in some contexts the government would find it optimal to regulate with positive probability but not with certainty. In those contexts the optimal policy is indeed made of regulatory threats; furthermore, we show that it is time-consistent, credible, involving little information, and immune to ex post renegotiation.

Ce document considère la menace d'une réglementation environnementale plus stricte en tant qu'instrument de politique économique visant à stimuler l'innovation. Il est démontré que, dans certains cas, le gouvernement préférerait réglementer avec une probabilité positive pas avec certitude. Dans ces situations, la politique optimale est en effet constituée de menaces de réglementation ; il est de plus démontré qu'elle est cohérente dans le temps, crédible, peu exigeante en information et robuste à la renégociation.

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Publisher Info
Paper provided by CIRANO in its series CIRANO Working Papers with number 95s-11.

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Date of creation: 01 Feb 1995
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Handle: RePEc:cir:cirwor:95s-11

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Related research
Keywords: Environmental regulation; Innovation; Réglementation environnementale ; Innovation;

Find related papers by JEL classification:
O31 - Economic Development, Technological Change, and Growth - - Technological Change - - - Innovation and Invention: Processes and Incentives
Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation

References listed on IDEAS
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  1. Fudenberg, Drew & Gilbert, Richard & Stiglitz, Joseph & Tirole, Jean, 1983. "Preemption, leapfrogging and competition in patent races," European Economic Review, Elsevier, vol. 22(1), pages 3-31, June. [Downloadable!] (restricted)
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  4. Daniel F. Spulber, 1989. "Regulation and Markets," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262192756.
  5. Choi, J.P., 1991. "Dynamic R & D Competition Under "Hazard Rate" Uncertainty," Discussion Papers 1991_10, Columbia University, Department of Economics.
    Other versions:
  6. Carraro, Carlo & Siniscalco, Domenico, 1991. "Environmental Innovation Policy and International Competition," CEPR Discussion Papers 525, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  7. Harris, Christopher & Vickers, John, 1987. "Racing with Uncertainty," Review of Economic Studies, Blackwell Publishing, vol. 54(1), pages 1-21, January. [Downloadable!] (restricted)
  8. Martin L. Weitzman, 1980. "The "Ratchet Principle" and Performance Incentives," Bell Journal of Economics, The RAND Corporation, vol. 11(1), pages 302-308, Spring. [Downloadable!] (restricted)
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  9. Krutilla, Kerry, 1991. "Environmental regulation in an open economy," Journal of Environmental Economics and Management, Elsevier, vol. 20(2), pages 127-142, March. [Downloadable!] (restricted)
  10. Glazer, Amihai & McMillan, Henry, 1992. "Pricing by the Firm under Regulatory Threat," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 1089-99, August. [Downloadable!] (restricted)
  11. Freixas, Xavier & Guesnerie, Roger & Tirole, Jean, 1985. "Planning under Incomplete Information and the Ratchet Effect," Review of Economic Studies, Blackwell Publishing, vol. 52(2), pages 173-91, April. [Downloadable!] (restricted)
  12. Milliman, Scott R. & Prince, Raymond, 1989. "Firm incentives to promote technological change in pollution control," Journal of Environmental Economics and Management, Elsevier, vol. 17(3), pages 247-265, November. [Downloadable!] (restricted)
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  14. Downing, Paul B. & White, Lawrence J., 1986. "Innovation in pollution control," Journal of Environmental Economics and Management, Elsevier, vol. 13(1), pages 18-29, March. [Downloadable!] (restricted)
  15. Kiminori Matsuyama, 1987. "Perfect Equilibria in a Trade Liberalization Game," Discussion Papers 738, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
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  16. Gene M. Grossman & Carl Shapiro, 1986. "Optimal Dynamic R&D Programs," RAND Journal of Economics, The RAND Corporation, vol. 17(4), pages 581-593, Winter. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Ioulia Ossokina & Otto Swank, 2008. "Adoption Subsidy Versus Technology Standards Under Asymmetric Information," De Economist, Springer, vol. 156(3), pages 241-267, September. [Downloadable!] (restricted)
  2. Adam Jaffe & Richard Newell & Robert Stavins, 2002. "Environmental Policy and Technological Change," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 22(1), pages 41-70, June. [Downloadable!] (restricted)
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