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Timing of adoption of clean technologies by regulated monopolies

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  • Ben Youssef, Slim

Abstract

We consider a monopolistic firm producing a good while polluting and using a fossil energy. This firm can adopt a clean technology by incurring an investment cost decreasing exponentially with the adoption date. This clean technology does not pollute and has a lower production cost because it uses a renewable energy. We determine the optimal adoption date for the firm in the case where it is not regulated at all, and in the case where it is regulated at each period of time i.e. the regulator looks for static social optimality. Interestingly, the regulated firm adopts the clean technology earlier than what is socially-optimal. However, the non-regulated firm adopts later than what is socially-optimal. The regulator can induce the firm to adopt at the socially-optimal date by a postpone adoption subsidy. Nevertheless, the regulator may be interested in the earlier adoption of the firm to encourage the diffusion of the use of clean technologies in other industries.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 42470.

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Date of creation: Sep 2010
Date of revision: Sep 2012
Handle: RePEc:pra:mprapa:42470

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Related research

Keywords: Static regulation; Clean technology; Renewable energy; Adoption date;

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  1. Cesare Dosi & Michele Moretto, . "Environmental Innovation, War of Attrition and Investment Grants," Working Papers, University of Brescia, Department of Economics ubs0406, University of Brescia, Department of Economics.
  2. Cesare Dosi & Michele Moretto, 1997. "Pollution Accumulation and Firm Incentives to Accelerate Technological Change Under Uncertain Private Benefits," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 10(3), pages 285-300, October.
  3. Whitehead, John C. & Cherry, Todd L., 2007. "Willingness to pay for a Green Energy program: A comparison of ex-ante and ex-post hypothetical bias mitigation approaches," Resource and Energy Economics, Elsevier, Elsevier, vol. 29(4), pages 247-261, November.
  4. Franz Wirl & Cees Withagen, 2000. "Complexities due to sluggish expansion of backstop technologies," Journal of Economics, Springer, Springer, vol. 72(2), pages 153-174, June.
  5. Fischer, Carolyn & Toman, Michael & Withagen, Cees, 2002. "Optimal Investment in Clean Production Capacity," Discussion Papers, Resources For the Future dp-02-38, Resources For the Future.
  6. Nasiri, Fuzhan & Zaccour, Georges, 2009. "An exploratory game-theoretic analysis of biomass electricity generation supply chain," Energy Policy, Elsevier, Elsevier, vol. 37(11), pages 4514-4522, November.
  7. Ben Youssef, Slim, 2008. "Adoption of a Cleaner Technology by a Monopoly Under Incomplete Information," MPRA Paper 9879, University Library of Munich, Germany, revised Jul 2008.
  8. Pillai, Indu R. & Banerjee, Rangan, 2009. "Renewable energy in India: Status and potential," Energy, Elsevier, Elsevier, vol. 34(8), pages 970-980.
  9. Li, Hui & Jenkins-Smith, Hank C. & Silva, Carol L. & Berrens, Robert P. & Herron, Kerry G., 2009. "Public support for reducing US reliance on fossil fuels: Investigating household willingness-to-pay for energy research and development," Ecological Economics, Elsevier, Elsevier, vol. 68(3), pages 731-742, January.
  10. van Soest, Daan P., 2005. "The impact of environmental policy instruments on the timing of adoption of energy-saving technologies," Resource and Energy Economics, Elsevier, Elsevier, vol. 27(3), pages 235-247, October.
  11. Caspary, Georg, 2009. "Gauging the future competitiveness of renewable energy in Colombia," Energy Economics, Elsevier, Elsevier, vol. 31(3), pages 443-449, May.
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