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The Strategic Use of Innovation to Influence Environmental Policy: Taxes versus Standards

Author

Listed:
  • Moner-Colonques Rafael
  • Rubio Santiago J.

    () (Department of Economic Analysis and ERI-CES, University of Valencia, Valencia, Spain)

Abstract

This paper evaluates the strategic behavior of a polluting monopolist to influence environmental policy, either with taxes or with standards, comparing two alternative policy games. The first of the games assumes that the regulator commits to an ex-ante level of the policy instrument. The second one is the time-consistent policy game. We find that the strategic behavior of the firm is welfare improving and leads to more environmental innovation than under regulatory commitment if a tax is used to control pollution. However, the contrary occurs if an emission standard is used. Under commitment, it is shown that both policy instruments are equivalent. We conclude that the optimal environmental policy is to use an emission tax since it yields the same welfare level than an emission standard for a committed regulator yet a larger welfare for a non-committed regulator.

Suggested Citation

  • Moner-Colonques Rafael & Rubio Santiago J., 2016. "The Strategic Use of Innovation to Influence Environmental Policy: Taxes versus Standards," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 16(2), pages 973-1000, April.
  • Handle: RePEc:bpj:bejeap:v:16:y:2016:i:2:p:973-1000:n:3
    as

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    References listed on IDEAS

    as
    1. Juan-Pablo Montero, 2011. "End of the line: A Note on Environmental Policy and Innovation when Governments cannot Commit," Documentos de Trabajo 394, Instituto de Economia. Pontificia Universidad Católica de Chile..
    2. Montero, Juan Pablo, 2011. "A note on environmental policy and innovation when governments cannot commit," Energy Economics, Elsevier, vol. 33(S1), pages 13-19.
    3. Yasunori Ouchida & Daisaku Goto, 2014. "Environmental Research Joint Ventures and Time-Consistent Emission Tax," Working Papers 2014.35, Fondazione Eni Enrico Mattei.
    4. Lambert Schoonbeek & Frans Vries, 2009. "Environmental taxes and industry monopolization," Journal of Regulatory Economics, Springer, vol. 36(1), pages 94-106, August.
    5. Tarui, Nori & Polasky, Stephen, 2005. "Environmental regulation with technology adoption, learning and strategic behavior," Journal of Environmental Economics and Management, Elsevier, vol. 50(3), pages 447-467, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
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    Cited by:

    1. Ángela García-Alamino & Santiago J. Rubio, 2019. "Emission Taxes, Feed-in Subsidies and the Investment in a Clean Technology by a Polluting Monopoly," Working Papers 2019.15, Fondazione Eni Enrico Mattei.
    2. Martín-Herrán, Guiomar & Rubio, Santiago J., 2016. "The Strategic Use of Abatement by a Polluting Monopoly," ETA: Economic Theory and Applications 244532, Fondazione Eni Enrico Mattei (FEEM).
    3. Moner-Colonques, R. & Rubio, S., 2015. "The timing of environmental policy in a duopolistic market," Economia Agraria y Recursos Naturales, Spanish Association of Agricultural Economists, vol. 15(01).
    4. Naoto Aoyama & Emilson C.D. Silva, 2017. "Asymmetric Innovation Agreements under Environmental Regulation," CESifo Working Paper Series 6782, CESifo Group Munich.
    5. repec:spr:envpol:v:20:y:2018:i:1:d:10.1007_s10018-017-0187-4 is not listed on IDEAS
    6. repec:gam:jeners:v:10:y:2017:i:12:p:2026-:d:121239 is not listed on IDEAS
    7. Guiomar Martín-Herrán & Santiago J. Rubio, 2016. "The Strategic Use of Abatement by a Polluting Monopoly," Working Papers 2016.58, Fondazione Eni Enrico Mattei.
    8. repec:bla:ecinqu:v:56:y:2018:i:4:p:1950-1979 is not listed on IDEAS

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