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Environmental Regulation: Supported by Polluting Firms, but Opposed by Green Firms

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  • Felix Munoz-Garcia

    ()

  • Sherzod Akhundjanov

    (School of Economic Sciences, Washington State University)

Abstract

This paper investigates the production decisions of polluting and green firms, and how their profits are affected by environmental regulation. We demonstrate that emission fees entail a negative effect on firms profits, since they increase unit production costs. However, fees can also produce a positive effect for a relatively inefficient firm, given that environmental regulation ameliorates its cost disadvantage. If such a disadvantage is sufficiently large, we show that the positive effect dominates, thus leading this firm to actually favor the introduction of environmental policy, while relatively efficient firms oppose regulation. Furthermore, we show that such support can not only originate from green firms but, more surprisingly, also from polluting companies.

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File URL: http://faculty.ses.wsu.edu/WorkingPapers/Munoz/WP2013-5.pdf
File Function: First version, 2013
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Bibliographic Info

Paper provided by School of Economic Sciences, Washington State University in its series Working Papers with number 2013-5.

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Length: 51 pages
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Handle: RePEc:wsu:wpaper:munoz-13

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Keywords: Cost asymmetries; Cost disadvantage; Emission fees; Green firms;

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  1. Gérard Gaudet & Ngo Van Long, 1993. "Vertical Integration, Foreclosure and Profits in the Presence of Double Marginalisation," Cahiers de recherche du Département des sciences économiques, UQAM 9308, Université du Québec à Montréal, Département des sciences économiques.
  2. Besley, Timothy & Ghatak, Maitreesh, 2007. "Retailing public goods: The economics of corporate social responsibility," Journal of Public Economics, Elsevier, vol. 91(9), pages 1645-1663, September.
  3. Maloney, Michael T & McCormick, Robert E, 1982. "A Positive Theory of Environmental Quality Regulation," Journal of Law and Economics, University of Chicago Press, vol. 25(1), pages 99-123, April.
  4. David P. Baron, 2001. "Private Politics, Corporate Social Responsibility, and Integrated Strategy," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 10(1), pages 7-45, 03.
  5. Ana Espínola-Arredondo & Félix Muñoz-García, 2012. "When do firms support environmental agreements?," Journal of Regulatory Economics, Springer, vol. 41(3), pages 380-401, June.
  6. Baron, David P., 2008. "Managerial contracting and corporate social responsibility," Journal of Public Economics, Elsevier, vol. 92(1-2), pages 268-288, February.
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