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Self-financing Tax/Subsidy Mechanisms in Environmental Regulation with Many Firms

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  • Breitscheidel, Jörg

Abstract

We consider the application of self-financing tax/subsidy mechanisms in environmental regulation and explore the question whether these mechanisms yield strong investment incentives in a market with many firms under Cournot competition. It turns out that the tax/subsidy mechanism with the announcement of the subsidy rate and the tax/subsidy mechanism with the announcement of the tax rate work for an arbitrary number of firms, which means that they yield strong incentives for investing in environmentally friendly technologies. The announcement of the subsidy rate is preferable for solving hold-up problems.

Suggested Citation

  • Breitscheidel, Jörg, 2005. "Self-financing Tax/Subsidy Mechanisms in Environmental Regulation with Many Firms," ZEW Discussion Papers 05-87, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  • Handle: RePEc:zbw:zewdip:4570
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    References listed on IDEAS

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    More about this item

    Keywords

    Hold-up problems; Environmental regulation; Taxes and subsidies; Selffinancing mechanisms; Emission control;

    JEL classification:

    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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