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Environmental Policy Choice under Uncertainty


Author Info

  • Ioulia V. Ossokina

    (Faculty of Economics, Erasmus University Rotterdam)

  • Otto H. Swank

    (Faculty of Economics, Erasmus University Rotterdam)


Market-based instruments are believed to create more efficient incentives for firmsto adopt new technologies than command-and-control policies. We compare the effects of a directtechnology regulation and of an adoption subsidy under asymmetric information about the costsof technological advances in pollution control. We show that the policy maker may want tocommit to her policy. The reason is that uncertainty about adoption costs induces the policymaker to set subsidy levels that increase over time; firms, expecting higher subsidies in thefuture, postpone investment. Direct regulation offers a commitment possibility that allows toprevent firms from postponing investment.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 03-011/1.

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Date of creation: 14 Feb 2003
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Handle: RePEc:dgr:uvatin:20030011

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Keywords: Pollution abatement technologies; Market-based instruments; Command-and-control.;

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