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Incomplete Environmental Regulation, Imperfect Competition, and Emissions Leakage

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  • Meredith L. Fowlie

Abstract

Environmental regulation of industrial pollution is often incomplete; regulations apply to only a subset of facilities contributing to a pollution problem. Policymakers are increasingly concerned about the emissions leakage that may occur if unregulated production can be easily substituted for regulated production. This paper analyzes emissions leakage in an incompletely regulated and imperfectly competitive industry. The analytical model is used to simulate outcomes under incomplete, market-based regulation of carbon dioxide emissions in California's electricity sector. Regulation that exempts out-of-state producers achieves approximately one-third of the total emissions reductions achieved under complete regulation at more than twice the cost per ton. (JEL L94, Q53, Q58)

Suggested Citation

  • Meredith L. Fowlie, 2009. "Incomplete Environmental Regulation, Imperfect Competition, and Emissions Leakage," American Economic Journal: Economic Policy, American Economic Association, vol. 1(2), pages 72-112, August.
  • Handle: RePEc:aea:aejpol:v:1:y:2009:i:2:p:72-112 Note: DOI: 10.1257/pol.1.2.72
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    References listed on IDEAS

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    1. Peter Davis, 2006. "Spatial competition in retail markets: movie theaters," RAND Journal of Economics, RAND Corporation, vol. 37(4), pages 964-982, December.
    2. Goolsbee, Austan, 2001. "Competition in the Computer Industry: Online versus Retail," Journal of Industrial Economics, Wiley Blackwell, vol. 49(4), pages 487-499, December.
    3. Michael R. Baye & John Morgan, 2004. "Price Dispersion in the Lab and on the Internet: Theory and Evidence," RAND Journal of Economics, The RAND Corporation, pages 448-466.
    4. Walsh, Michael J. & Jones, Jonathan D., 1988. "More Evidence on the "Border Tax" Effect: The Case of West Virginia, 1979-84," National Tax Journal, National Tax Association, vol. 41(2), pages 261-65, June.
    5. Hausman, Jerry & Hall, Bronwyn H & Griliches, Zvi, 1984. "Econometric Models for Count Data with an Application to the Patents-R&D Relationship," Econometrica, Econometric Society, vol. 52(4), pages 909-938, July.
    6. repec:rje:randje:v:37:y:2006:i:4:p:964-982 is not listed on IDEAS
    7. Chris Forman & Anindya Ghose & Avi Goldfarb, 2009. "Competition Between Local and Electronic Markets: How the Benefit of Buying Online Depends on Where You Live," Management Science, INFORMS, pages 47-57.
    8. Lesley Chiou, 2009. "Empirical Analysis of Competition between Wal-Mart and Other Retail Channels," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 18(2), pages 285-322, June.
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    More about this item

    JEL classification:

    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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