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Strategic Investment by a Regulated Firm

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  • Amihai Glazer
  • Eckhard Janeba

Abstract

A government's choice of regulatory stringency can depend on investments that a firm made in earlier periods. The regulated firm may therefore invest strategically, to effect the government's choice of regulation. To reduce its payment of emissions taxes, the firm may therefore reduce emissions below their socially optimal level. In contrast, a firm subject to regulation by quantity wants to reduce the stringency of regulations. A firm which invests little thereby reduces the marginal social cost of reducing emissions, and so can induce government to weaken its regulations.

Suggested Citation

  • Amihai Glazer & Eckhard Janeba, 2004. "Strategic Investment by a Regulated Firm," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 11(2), pages 123-132, March.
    • Handle: RePEc:kap:itaxpf:v:11:y:2004:i:2:p:123-132
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    Cited by:

    1. Hattori, Keisuke, 2010. "Firm Incentives for Environmental R&D under Non-cooperative and Cooperative Policies," MPRA Paper 24754, University Library of Munich, Germany.
    2. Konrad, Kai A., 2017. "Large investors, regulatory taking and investor-state dispute settlement," European Economic Review, Elsevier, vol. 98(C), pages 341-353.
    3. Dijkstra, Bouwe R., 2007. "An investment contest to influence environmental policy," Resource and Energy Economics, Elsevier, vol. 29(4), pages 300-324, November.

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