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Design standards and technology adoption: Welfare effects of increasing environmental fines when the number of firms is endogenous

Listed author(s):
  • Baumann, Florian
  • Friehe, Tim

This paper examines the consequences of an increase in the expected fine for non-compliance with an environmental design standard for an industry with Cournot competition and free entry. Our analysis is quite timely, given recent policy proposals to raise environmental fines. We describe the range in which changes in the environmental fine have no consequences, and detail the various other effects that emerge. It is established that an increase in the expected fine for non-compliance may have adverse welfare consequences, while it always serves the purpose of inducing a greater share of firms to adopt the prescribed technology.

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File URL: https://www.econstor.eu/bitstream/10419/81932/1/767821440.pdf
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Paper provided by University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE) in its series DICE Discussion Papers with number 106.

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Date of creation: 2013
Handle: RePEc:zbw:dicedp:106
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  1. Sandra Rousseau & Stef Proost, 2009. "The relative efficiency of market-based environmental policy instruments with imperfect compliance," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 16(1), pages 25-42, February.
  2. Clara Villegas-Palacio & Jessica Coria, 2010. "On the interaction between imperfect compliance and technology adoption: taxes versus tradable emissions permits," Journal of Regulatory Economics, Springer, vol. 38(3), pages 274-291, December.
  3. repec:adr:anecst:y:2004:i:75-76:p:11 is not listed on IDEAS
  4. Brent Hueth & Tigran Melkonyan, 2009. "Standards and the regulation of environmental risk," Journal of Regulatory Economics, Springer, vol. 36(3), pages 219-246, December.
  5. Endres,Alfred, 2011. "Environmental Economics," Cambridge Books, Cambridge University Press, number 9780521173926, September.
  6. Macho-Stadler, Ines & Perez-Castrillo, David, 2006. "Optimal enforcement policy and firms' emissions and compliance with environmental taxes," Journal of Environmental Economics and Management, Elsevier, vol. 51(1), pages 110-131, January.
  7. Barnett, A H, 1980. "The Pigouvian Tax Rule under Monopoly," American Economic Review, American Economic Association, vol. 70(5), pages 1037-1041, December.
  8. Requate, Till, 2005. "Environmental Policy under Imperfect Competition : A Survey," Economics Working Papers 2005,12, Christian-Albrechts-University of Kiel, Department of Economics.
  9. Y. H. Farzin, 2004. "Can Stricter Environmental Standards Benefit the Industry and Enhance Welfare," Annals of Economics and Statistics, GENES, issue 75-76, pages 223-255.
  10. Goerke, Laszlo & Runkel, Marco, 2006. "Profit Tax Evasion Under Oligopoly With Endogenous Market Structure," National Tax Journal, National Tax Association, vol. 59(4), pages 851-857, December.
  11. Timo Goeschl & Ole Jürgens, 2014. "Criminalizing environmental offences: when the prosecutor’s helping hand hurts," European Journal of Law and Economics, Springer, vol. 37(2), pages 199-219, April.
  12. Endres,Alfred, 2011. "Environmental Economics," Cambridge Books, Cambridge University Press, number 9781107002142, September.
  13. Katsoulacos, Yannis & Xepapadeas, Anastasios, 1995. " Environmental Policy under Oligopoly with Endogenous Market Structure," Scandinavian Journal of Economics, Wiley Blackwell, vol. 97(3), pages 411-420, September.
  14. Helfand, Gloria E, 1991. "Standards versus Standards: The Effects of Different Pollution Restrictions," American Economic Review, American Economic Association, vol. 81(3), pages 622-634, June.
  15. Lee, Sang-Ho, 1999. "Optimal Taxation for Polluting Oligopolists with Endogenous Market Structure," Journal of Regulatory Economics, Springer, vol. 15(3), pages 293-308, May.
  16. Endres, Alfred & Friehe, Tim, 2011. "Incentives to diffuse advanced abatement technology under environmental liability law," Journal of Environmental Economics and Management, Elsevier, vol. 62(1), pages 30-40, July.
  17. Besanko, David, 1987. "Performance versus design standards in the regulation of pollution," Journal of Public Economics, Elsevier, vol. 34(1), pages 19-44, October.
  18. Agnar Sandmo, 2002. "Efficient Environmental Policy with Imperfect Compliance," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 23(1), pages 85-103, September.
  19. Baumann, Florian & Friehe, Tim, 2012. "On the evasion of employment protection legislation," Labour Economics, Elsevier, vol. 19(1), pages 9-17.
  20. repec:adr:anecst:y:2004:i:75-76 is not listed on IDEAS
  21. Carmen Arguedas & Eva Camacho & José Zofío, 2010. "Environmental Policy Instruments: Technology Adoption Incentives with Imperfect Compliance," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 47(2), pages 261-274, October.
  22. Laszlo Goerke & Marco Runkel, 2011. "Tax evasion and competition," Scottish Journal of Political Economy, Scottish Economic Society, vol. 58(5), pages 711-736, November.
  23. Alfred Endres & Regina Bertram & Bianca Rundshagen, 2007. "Environmental Liability Law and Induced Technical Change – The Role of Discounting," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 36(3), pages 341-366, March.
  24. Philippe Mahenc, 2007. "Are green products over-priced?," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 38(4), pages 461-473, December.
  25. 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.
  26. Requate, Till, 2005. "Dynamic incentives by environmental policy instruments--a survey," Ecological Economics, Elsevier, vol. 54(2-3), pages 175-195, August.
  27. Malik, Arun S., 1990. "Markets for pollution control when firms are noncompliant," Journal of Environmental Economics and Management, Elsevier, vol. 18(2), pages 97-106, March.
  28. Sandra Rousseau & Stef Proost, 2005. "Comparing Environmental Policy Instruments in the Presence of Imperfect Compliance – A Case Study," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 32(3), pages 337-365, November.
  29. Farzin, Y H, 2003. "The Effects of Emissions Standards on Industry," Journal of Regulatory Economics, Springer, vol. 24(3), pages 315-327, November.
  30. Keeler, Andrew G., 1991. "Noncompliant firms in transferable discharge permit markets: Some extensions," Journal of Environmental Economics and Management, Elsevier, vol. 21(2), pages 180-189, September.
  31. Murphy, James J. & Stranlund, John K., 2006. "Direct and market effects of enforcing emissions trading programs: An experimental analysis," Journal of Economic Behavior & Organization, Elsevier, vol. 61(2), pages 217-233, October.
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