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Taxation and Technology Adoption: A Hotelling Approach

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  • Ziesemer, Thomas

    ()
    (University of Maastricht, Faculty of Economics)

  • Kriechel, Ben

    ()
    (University of Maastricht, Research Centre for Education and the Labour Market (ROA))

Abstract

Environmental regulation and competitiveness are issues that seem to be at odds. However, the `Porter Hypothesis' states that firms can actually gain in competitiveness if they are subject to stricter environmental regulation. We show in a simple model the basic setting of the problem to apply it then to a Hotelling framework. A non-adoption tax (adoption subsidy) is shown to destroy a non-adoption equilibrium in a closed economy model. We show that taxes not directly targeting the non-adoption problem may fail to have an adoption incentive on the firms. In an open economy model the Porter Hypothesis is shown to hold if (i) non-adoption taxes are higher than adoption costs for one country and lower for the other, and (ii) the returns of second adoption are insufficient to cover the net adoption costs.

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Bibliographic Info

Paper provided by United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT) in its series MERIT Working Papers with number 009.

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Date of creation: 2006
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Handle: RePEc:unm:unumer:2006009

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Keywords: environmental regulations; industrial competitiveness; taxation;

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  1. Martin Klein & Jaqueline Rothfels, . "Can Environmental Regulation of X-Ineffecient Firms Create a -Double Dividend-?," IWH Discussion Papers, Halle Institute for Economic Research 103, Halle Institute for Economic Research.
  2. Adam B. Jaffe & Karen Palmer, 1997. "Environmental Regulation And Innovation: A Panel Data Study," The Review of Economics and Statistics, MIT Press, vol. 79(4), pages 610-619, November.
  3. Simpson, R. David & Bradford, Robert III, 1996. "Taxing Variable Cost: Environmental Regulation as Industrial Policy," Journal of Environmental Economics and Management, Elsevier, vol. 30(3), pages 282-300, May.
  4. Robert Ayres, 1994. "On economic disequilibrium and free lunch," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 4(5), pages 435-454, October.
  5. Armin Schmutzler, 1998. "Environmental Regulations and Managerial Myopia," SOI - Working Papers, Socioeconomic Institute - University of Zurich 9903, Socioeconomic Institute - University of Zurich.
  6. Stefan Ambec & Philippe Barla, 2001. "A Theoretical Foundation of the Porter Hypothesis," CSEF Working Papers, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy 54, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  7. Fudenberg, Drew & Tirole, Jean, 1987. "Understanding Rent Dissipation: On the Use of Game Theory in Industrial Organization," American Economic Review, American Economic Association, American Economic Association, vol. 77(2), pages 176-83, May.
  8. Mohr, Robert D., 2002. "Technical Change, External Economies, and the Porter Hypothesis," Journal of Environmental Economics and Management, Elsevier, vol. 43(1), pages 158-168, January.
  9. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262200716, December.
  10. Greaker, Mads, 2003. "Strategic environmental policy; eco-dumping or a green strategy?," Journal of Environmental Economics and Management, Elsevier, vol. 45(3), pages 692-707, May.
  11. Ulph, Alistair, 1996. "Environmental Policy and International Trade when Governments and Producers Act Strategically," Journal of Environmental Economics and Management, Elsevier, vol. 30(3), pages 265-281, May.
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