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Why do firms oppose entry-deterring policies? Environmental regulation and entry deterrence

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  • Espínola-Arredondo, Ana
  • Muñoz-García, Félix

Abstract

This paper investigates the design of environmental regulation under different regimes: flexible and inflexible policies. We analyze under which settings strict emission fees can be used as an entry-deterring tool, and become socially optimal. Furthermore, we demonstrate that the incentives of the social planner and the incumbent firm are aligned regarding policy regimes ifentry can be easily deterred by setting a stringent regulation. Their incentives, however, can bemisaligned when entry becomes more costly to deter, leading the incumbent to actually preferenvironmental policies that attract entry.

Suggested Citation

  • 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.
    • Handle: RePEc:cup:endeec:v:20:y:2015:i:02:p:141-160_00
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    1. 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.

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