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Environmental Policy Choice under Uncertainty

Author

Listed:
  • Ioulia V. Ossokina

    (Faculty of Economics, Erasmus University Rotterdam)

  • Otto H. Swank

    (Faculty of Economics, Erasmus University Rotterdam)

Abstract

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.

Suggested Citation

  • Ioulia V. Ossokina & Otto H. Swank, 2003. "Environmental Policy Choice under Uncertainty," Tinbergen Institute Discussion Papers 03-011/1, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20030011
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    More about this item

    Keywords

    Pollution abatement technologies; Market-based instruments; Command-and-control.;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

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