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Self-financing Tax/Subsidy Mechanisms in Environmental Regulation with Many Firms

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  • Breitscheidel, Jörg
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    Abstract

    We consider the application of self-financing tax/subsidy mechanisms in environmental regulation and explore the question whether these mechanisms yield strong investment incentives in a market with many firms under Cournot competition. It turns out that the tax/subsidy mechanism with the announcement of the subsidy rate and the tax/subsidy mechanism with the announcement of the tax rate work for an arbitrary number of firms, which means that they yield strong incentives for investing in environmentally friendly technologies. The announcement of the subsidy rate is preferable for solving hold-up problems. --

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    File URL: http://econstor.eu/bitstream/10419/24183/1/dp0587.pdf
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    Bibliographic Info

    Paper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 05-87.

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    Date of creation: 2005
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    Handle: RePEc:zbw:zewdip:4570

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    Related research

    Keywords: Hold-up problems; Environmental regulation; Taxes and subsidies; Selffinancing mechanisms; Emission control;

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    1. Matsuyama, Kiminori, 1990. "Perfect Equilibria in a Trade Liberalization Game," American Economic Review, American Economic Association, vol. 80(3), pages 480-92, June.
    2. Tornell, Aaron, 1991. "Time Inconsistency of Protectionist Programs," The Quarterly Journal of Economics, MIT Press, vol. 106(3), pages 963-74, August.
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    4. Laffont, J.J. & Tirole, J., 1995. "Pollution Permits and Environmental Innovation," Papers 95.396, Toulouse - GREMAQ.
    5. Urbiztondo, Santiago, 1994. "Investment without Regulatory Commitment: The Case of Elastic Demand," Journal of Regulatory Economics, Springer, vol. 6(1), pages 87-96, February.
    6. Jung, Chulho & Krutilla, Kerry & Boyd, Roy, 1996. "Incentives for Advanced Pollution Abatement Technology at the Industry Level: An Evaluation of Policy Alternatives," Journal of Environmental Economics and Management, Elsevier, vol. 30(1), pages 95-111, January.
    7. Requate, Till & Unold, Wolfram, 2003. "Environmental policy incentives to adopt advanced abatement technology:: Will the true ranking please stand up?," European Economic Review, Elsevier, vol. 47(1), pages 125-146, February.
    8. Varian, Hal R, 1994. "A Solution to the Problem of Externalities When Agents Are Well-Informed," American Economic Review, American Economic Association, vol. 84(5), pages 1278-93, December.
    9. Williamson, Oliver E, 1983. "Credible Commitments: Using Hostages to Support Exchange," American Economic Review, American Economic Association, vol. 73(4), pages 519-40, September.
    10. Till Requate, 1995. "Incentives to adopt new technologies under different pollution-control policies," International Tax and Public Finance, Springer, vol. 2(2), pages 295-317, August.
    11. Joerg Breitscheidel & Hans Gersbach, 2005. "Self-Financing Environmental Mechanisms," CESifo Working Paper Series 1528, CESifo Group Munich.
    12. Hans Gersbach, 2002. "How to get firms to invest: A simple solution to the hold-up problem in regulation," Review of Economic Design, Springer, vol. 7(1), pages 45-56.
    13. Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, University of Chicago Press, vol. 21(2), pages 297-326, October.
    14. Joskow, Paul L, 1987. "Contract Duration and Relationship-Specific Investments: Empirical Evidence from Coal Markets," American Economic Review, American Economic Association, vol. 77(1), pages 168-85, March.
    15. Milliman, Scott R. & Prince, Raymond, 1989. "Firm incentives to promote technological change in pollution control," Journal of Environmental Economics and Management, Elsevier, vol. 17(3), pages 247-265, November.
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