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Social norms and emission tax multiple equilibria in adopting pollution abatement device

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  • Ho Shirley

Abstract

The effect of social norm is addressed in an adoption game, where an emission tax is used to motivate oligopolistic firms to adopt a pollution abatement device. We ask if the intrinsic motivation from social norm alone can motivate firms to participate in adoption. The multiple equilibria in the adoption game indicates two possibilities: this intrinsic motivation may or may not enhance adoption. The existing literature on equilibrium selection further suggests that the most likely outcome is that it cannot enhance adoption. Next, by keeping the assumption of symmetry, we show that if cooperation is an option for firms, then the presence of two coordination effects (social norm on adoption and cooperation benefits on output) will result in the existence of asymmetric adoptions.

Suggested Citation

  • Ho Shirley, 2010. "Social norms and emission tax multiple equilibria in adopting pollution abatement device," Applied Economics, Taylor & Francis Journals, vol. 42(1), pages 97-105.
  • Handle: RePEc:taf:applec:v:42:y:2010:i:1:p:97-105
    DOI: 10.1080/00036840701537844
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    1. John C. Harsanyi & Reinhard Selten, 1988. "A General Theory of Equilibrium Selection in Games," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262582384, December.
    2. Kennedy, Peter W. & Laplante, Benoit, 1995. "Equilibrium incentives for adopting cleaner technology under emissions pricing," Policy Research Working Paper Series 1491, The World Bank.
    3. Rauscher, Michael, 1997. "Voluntary Emission Reductions, Social Rewards, and Environmental Policy," Thuenen-Series of Applied Economic Theory 10, University of Rostock, Institute of Economics.
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