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The Effects of Bailouts and Soft Budget Constraints on the Environment

  • Joel Wood

    ()

This paper investigates the effects of financial relief programs, commonly referred to as ‘bailouts’, on pollution. A partial equilibrium soft budget constraint model of the firm is developed to identify the effect of bailouts on the emission decisions of firms. The results from the model indicate that the expectation of bailouts increases ex ante emissions. A more stringent emissions tax is required to achieve the same level of emissions if bailouts are available than if bailouts are not available; however, a tradable permit system will maintain the same emissions level if bailouts are available as when bailouts are not available. Copyright Springer Science+Business Media B.V. 2013

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File URL: http://hdl.handle.net/10.1007/s10640-012-9584-0
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Article provided by European Association of Environmental and Resource Economists in its journal Environmental and Resource Economics.

Volume (Year): 54 (2013)
Issue (Month): 1 (January)
Pages: 127-137

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Handle: RePEc:kap:enreec:v:54:y:2013:i:1:p:127-137
Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=100263

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  1. Goldfeld, Stephen M. & Quandt, Richard E., 1988. "Budget constraints, bailouts, and the firm under central planning," Journal of Comparative Economics, Elsevier, vol. 12(4), pages 502-520, December.
  2. Goldfeld, Stephen M. & Quandt, Richard E., 1990. "Output targets, the soft budget constraint and the firm under central planning," Journal of Economic Behavior & Organization, Elsevier, vol. 14(2), pages 205-222, October.
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  7. Werner Antweiler, 2003. "How Effective Is Green Regulatory Threat?," American Economic Review, American Economic Association, vol. 93(2), pages 436-441, May.
  8. J�nos Kornai & Eric Maskin & G�rard Roland, 2003. "Understanding the Soft Budget Constraint," Journal of Economic Literature, American Economic Association, vol. 41(4), pages 1095-1136, December.
  9. Goldfeld, Stephen M. & Quandt, Richard E., 1993. "Uncertainty, bailouts, and the Kornai effect," Economics Letters, Elsevier, vol. 41(2), pages 113-119.
  10. Goldfeld, Stephen M. & Quandt, Richard E., 1992. "Effects of bailouts, taxes, and risk-aversion on the enterprise," Journal of Comparative Economics, Elsevier, vol. 16(1), pages 150-167, March.
  11. Lin, Justin Yifu & Li, Zhiyun, 2008. "Policy burden, privatization and soft budget constraint," Journal of Comparative Economics, Elsevier, vol. 36(1), pages 90-102, March.
  12. János Kornai, 2014. "The soft budget constraint," Acta Oeconomica, Akadémiai Kiadó, Hungary, vol. 64(supplemen), pages 25-79, November.
  13. Prell, Mark A., 1996. "The Two Kornai Effects," Journal of Comparative Economics, Elsevier, vol. 22(3), pages 267-276, June.
  14. Magee, Karen L & Quandt, Richard E, 1994. " The Kornai Effect with Partial Bailouts and Taxes," Economic Change and Restructuring, Springer, vol. 27(1), pages 27-38.
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