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Self-Financing Environmental Mechanisms

Author

Listed:
  • Joerg Breitscheidel
  • Hans Gersbach

Abstract

We explore the design of self-financing tax/subsidy mechanisms to solve hold-up problems in environmental regulation. Under Cournot competition, announcing the subsidy rate seems to be preferable to announcing the tax rate. Moreover, for constant marginal damage the hold-up problem can always be solved by setting subsidies. Under Bertrand competition, only announcing the tax rate can induce at least one firm to invest. We suggest that feebate systems in the automotive sector should be designed as self-financing tax/subsidy mechanisms.

Suggested Citation

  • Joerg Breitscheidel & Hans Gersbach, 2005. "Self-Financing Environmental Mechanisms," CESifo Working Paper Series 1528, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_1528
    as

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    File URL: http://www.cesifo-group.de/DocDL/cesifo1_wp1528.pdf
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    References listed on IDEAS

    as
    1. Dieter Helm & Cameron Hepburn & Richard Mash, 2003. "Time Inconsistent Environmental Policy and Optimal Delegation," Economics Series Working Papers 175, University of Oxford, Department of Economics.
    2. Hans Gersbach, 2002. "How to get firms to invest: A simple solution to the hold-up problem in regulation," Review of Economic Design, Springer;Society for Economic Design, vol. 7(1), pages 45-56.
    3. Jung, Chulho & Krutilla, Kerry & Boyd, Roy, 1996. "Incentives for Advanced Pollution Abatement Technology at the Industry Level: An Evaluation of Policy Alternatives," Journal of Environmental Economics and Management, Elsevier, vol. 30(1), pages 95-111, January.
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    5. Gersbach, Hans & Glazer, Amihai, 1999. "Markets and Regulatory Hold-Up Problems," Journal of Environmental Economics and Management, Elsevier, vol. 37(2), pages 151-164, March.
    6. Urbiztondo, Santiago, 1994. "Investment without Regulatory Commitment: The Case of Elastic Demand," Journal of Regulatory Economics, Springer, vol. 6(1), pages 87-96, February.
    7. Laffont, Jean-Jacques & Tirole, Jean, 1996. "Pollution permits and environmental innovation," Journal of Public Economics, Elsevier, vol. 62(1-2), pages 127-140, October.
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    11. Till Requate, 1995. "Incentives to adopt new technologies under different pollution-control policies," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 2(2), pages 295-317, August.
    12. Williamson, Oliver E, 1983. "Credible Commitments: Using Hostages to Support Exchange," American Economic Review, American Economic Association, vol. 73(4), pages 519-540, September.
    13. Train, Kenneth E. & Davis, William B. & Levine, Mark D., 1997. "Fees and rebates on new vehicles: Impacts on fuel efficiency, carbon dioxide emissions, and consumer surplus," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 33(1), pages 1-13, March.
    14. Requate, Till & Unold, Wolfram, 2003. "Environmental policy incentives to adopt advanced abatement technology:: Will the true ranking please stand up?," European Economic Review, Elsevier, vol. 47(1), pages 125-146, February.
    15. Staiger, Robert W & Tabellini, Guido, 1987. "Discretionary Trade Policy and Excessive Protection," American Economic Review, American Economic Association, vol. 77(5), pages 823-837, December.
    16. Aaron Tornell, 1991. "Time Inconsistency of Protectionist Programs," The Quarterly Journal of Economics, Oxford University Press, vol. 106(3), pages 963-974.
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    Keywords

    hold-up problems; environmental regulation; taxes and subsidies; self-financing mechanisms; emission control;

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