Strictness of Environmental Policy and Investment in Abatement

Maria J. Gil-Molto () and Bouwe Dijkstra
Authors registered in the RePEc Author Service: Maria Jose Gil Molto

No 11/35, Discussion Papers in Economics from Division of Economics, School of Business, University of Leicester

Abstract: In this paper we model an oligopoly where .rms invest in abatement technologies and emissions are taxed by the government. We show that a stricter environmental policy does not necessarily lead to an increase in .rms.R&D investment into cleaner production methods. In fact, the emission-to-output ratio may be a U-shaped function of the environmental damage parameter. This result holds both when the government can commit and in the social optimum. When the government cannot commit, this relationship is ambiguous except in markets with few .rms. Our results further suggest that if the emission-to-output ratio is decreasing throughout, output is a U-shaped function of the environmental damage.

Keywords: Environmental innovation; environmental taxation; commitment; oligopoly (search for similar items in EconPapers)
JEL-codes: L12 Q55 Q58 (search for similar items in EconPapers)
Date: 2011-07
New Economics Papers: this item is included in nep-ene, nep-env, nep-ino, nep-reg and nep-res
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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