Strategic Investment by a Regulated Firm
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.
When requesting a correction, please mention this item's handle: RePEc:kap:itaxpf:v:11:y:2004:i:2:p:123-132. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sonal Shukla)or (Rebekah McClure)
If references are entirely missing, you can add them using this form.