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Investment Subsidies and Time-Consistent Environmental Policy

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  • Lisandro Abrego
  • Carlo Perroni

Abstract

We describe a model of dynamic pollution abatement choices with heterogeneous agents, where, due to the presence of a distributional objective and to the absence of incentive-compatible compensation mechanisms, the choice of a second-best level of emission taxation is time-inconsistent. In this model, we investigate whether investment subsidies can act as a substitute for policy commitment.

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Paper provided by Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics in its series EPRU Working Paper Series with number 99-19.

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Handle: RePEc:kud:epruwp:99-19

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Cited by:
  1. Bouwe Dijkstra & Maria J. Gil-Moltó, 2014. "Is Emission Intensity or Output U-shaped in the Strictness of Environmental Policy," CESifo Working Paper Series 4833, CESifo Group Munich.
  2. Dieter Helm & Cameron Hepburn & Richard Mash, 2003. "Time Inconsistent Environmental Policy and Optimal Delegation," Economics Series Working Papers 175, University of Oxford, Department of Economics.
  3. Alistair Ulph & David Ulph, 2013. "Optimal Climate Change Policies When Governments Cannot Commit," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 56(2), pages 161-176, October.
  4. Alistair Ulph & David Ulph, 2011. "Optimal Climate Change Policies When Governments Cannot Commit," Discussion Paper Series, Department of Economics 201104, Department of Economics, University of St. Andrews.
  5. Christophe Deissenberg & Herbert Dawid & Pavel Sevcik, 2004. "Cheap Talk, Gullibility, and Welfare in an Environmental Taxation Game," Working Papers 2004.137, Fondazione Eni Enrico Mattei.
  6. Yasunori Ouchida & Daisaku Goto, 2014. "Environmental Research Joint Ventures and Time-Consistent Emission Tax," Working Papers 2014.35, Fondazione Eni Enrico Mattei.
  7. Roques, F.A. & Nuttall, W.J. & Newbery, D.M., 2006. "Using Probabilistic Analysis to Value Power Generation Investments Under Uncertainty," Cambridge Working Papers in Economics 0650, Faculty of Economics, University of Cambridge.
  8. Larry Karp & Jiangfeng Zhang, 2012. "Taxes versus quantities for a stock pollutant with endogenous abatement costs and asymmetric information," Economic Theory, Springer, vol. 49(2), pages 371-409, February.
  9. Thierry Vignolo & Jacques Percebois & Agnes dArtigues, 2007. "The time-inconsistency of alternative energy policy," Economics Bulletin, AccessEcon, vol. 1(1), pages 1-7.
  10. Grischa Perino, 2008. "The Design of Permit Schemes and Environmental Innovation," Working Papers 0467, University of Heidelberg, Department of Economics, revised Jun 2008.
  11. Taran Fæhn & Elisabeth Thuestad Isaksen, 2014. "Diffusion of climate technologies in the presence of commitment problems," Discussion Papers 768, Research Department of Statistics Norway.
  12. Marsiliani, L. & Renstrom, T.I., 1999. "Time Inconsistency in Environmental Policy: Tax Earmarking as A Commitment Solution," Discussion Paper 1999-86, Tilburg University, Center for Economic Research.
  13. Raphael Calel, 2011. "Market-based instruments and technology choices: a synthesis," Grantham Research Institute on Climate Change and the Environment Working Papers 57, Grantham Research Institute on Climate Change and the Environment.

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