Environmental Policy and Misallocation: The Productivity Effect of Intensity Standards
Firm-level idiosyncratic policy distortions misallocate resources between firms â€“ lowering aggregate productivity. Many environmental policies create such distortions; in particular, output-based intensity standards (which limit firmsâ€™ energy use or emissions per unit of output) are easier for highproductivity firms to achieve. As the existing environmental literature does not examine these distortions, we model a large number of heterogenous firms in multiple industries with endogenous entry and exit. Our tractable model explicitly captures productivity losses from misallocated resources. Calibrated to US data, we show intensity standards can create large productivity losses from misallocation. We also examine ways to mitigate these costs.
|Date of creation:||16 Oct 2014|
|Date of revision:||16 Oct 2014|
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