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Can Polluting Firms Favor Regulation?

Author

Listed:
  • Muñoz-García Félix

    (School of Economic Sciences, Washington State University, Pullman, WA 99164, 103G Hulbert Hall, USA)

  • Akhundjanov Sherzod B.

    (Department of Applied Economics, Utah State University, Logan, UT 84322, 4835 Old Main Hill)

Abstract

This paper investigates the production decisions of firms with asymmetric environmental damages, 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 mitigates 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 the relatively efficient firm opposes regulation. Furthermore, we show that such support can originate from polluting companies.

Suggested Citation

  • Muñoz-García Félix & Akhundjanov Sherzod B., 2016. "Can Polluting Firms Favor Regulation?," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 16(4), pages 1-23, October.
    • Handle: RePEc:bpj:bejeap:v:16:y:2016:i:4:p:23:n:5
    DOI: 10.1515/bejeap-2015-0163
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    References listed on IDEAS

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    1. Goeschl, Timo & Perino, Grischa, 2007. "Innovation without magic bullets: Stock pollution and R&D sequences," Journal of Environmental Economics and Management, Elsevier, vol. 54(2), pages 146-161, September.
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    3. Espínola-Arredondo, Ana & Muñoz-García, Félix, 2015. "Why do firms oppose entry-deterring policies? Environmental regulation and entry deterrence," Environment and Development Economics, Cambridge University Press, vol. 20(2), pages 141-160, April.
    4. 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.
    5. 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.
    6. Félix Muñoz-García & Sherzod B. Akhundjanov, 2014. "Firm Preferences for Environmental Regulation," Review of Environment, Energy and Economics - Re3, Fondazione Eni Enrico Mattei, November.
    7. Akhundjanov, Sherzod B. & Munoz-Garcia, Felix, 2016. "Firm Preferences for Environmental Policy: Industry Uniform or Firm Specific?," Strategic Behavior and the Environment, now publishers, vol. 6(1-2), pages 135-180, December.
    8. Kurtyka, Oliwia & Mahenc, Philippe, 2011. "The switching effect of environmental taxation within Bertrand differentiated duopoly," Journal of Environmental Economics and Management, Elsevier, vol. 62(2), pages 267-277, September.
    9. 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.
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    Citations

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    Cited by:

    1. Roy Cerqueti & Raffaella Coppier & Gustavo Piga, 2021. "Bribes, Lobbying and Industrial Structure," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 7(3), pages 439-460, November.
    2. Yanhong Liu & Jia Lei & Yihua Zhang, 2021. "A Study on the Sustainable Relationship among the Green Finance, Environment Regulation and Green-Total-Factor Productivity in China," Sustainability, MDPI, vol. 13(21), pages 1-27, October.
    3. Kanjilal, Kiriti & Ahmed, Haseeb, 2021. "Transboundary regulation and management of antibiotics in livestock," 2021 Annual Meeting, August 1-3, Austin, Texas 313889, Agricultural and Applied Economics Association.
    4. Sherzod B. Akhundjanov & Felix Muñoz-García, 2019. "Transboundary Natural Resources, Externalities, and Firm Preferences for Regulation," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 73(1), pages 333-352, May.
    5. Choi, Pak-Sing & Espinola-Arredondo, Ana & Munoz-Garcia, Felix, 2024. "Environmental regulation under sequential competition," Journal of Economic Behavior & Organization, Elsevier, vol. 221(C), pages 52-72.
    6. Zhian Yang & Xiaochen Liu & Alina Badulescu, 2024. "Financing Sustainability: Unveiling the Role of Government Debt in Carbon Reduction Performance," Sustainability, MDPI, vol. 16(21), pages 1-19, October.
    7. Arthur R. Wardle & Sherzod B. Akhundjanov, 2025. "Industry Compliance Costs Under the Renewable Fuel Standard: Evidence from Compliance Credits," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 67(1), pages 1-34, June.
    8. Li, Lidan & Han, Jie & Mo, Shenwei & Yang, Yupeng, 2024. "Tackling competition by reducing emissions: Private firms’ polluting behavior under peer IPOs," International Review of Economics & Finance, Elsevier, vol. 89(PB), pages 232-249.

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    Keywords

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    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q20 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - General

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