Firms'and States'Responses to Laxer Environmental Standards

Tito Cordella and Shantayanan Devarajan

No 8781, Policy Research Working Paper Series from The World Bank

Abstract: On June 1, 2017, President Trump announced the United States'withdrawal from the Paris agreement on climate change. Despite this decision, American firms continued investing in low-carbon technologies and some states committed to tougher environmental standards. To understand this apparent paradox, this paper studies how a weakening of environmental standards affects the behavior of profit-maximizing firms. It finds that a relaxation of emission standards (i) may increase firms'incentives to adopt clean technologies, but not to pollute less; (ii) may negatively affect industry profitability if it is perceived as temporary; and, when this is the case, (iii) the unilateral adoption of stricter standards by large states may increase the expected profitability of every firm.

Keywords: Global Environment; Private Sector Economics; Climate Change and Health; Science of Climate Change; Climate Change and Environment; Energy and Mining; Energy Demand; Energy and Environment; Regulatory Regimes; Environmental Strategy; Environmental&Natural Resources Law; Judicial System Reform; Legal Reform; Legal Products; Social Policy; Legislation; Environmental Management (search for similar items in EconPapers)
Date: 2019-03-14
New Economics Papers: this item is included in nep-ene, nep-env and nep-law
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Citations: View citations in EconPapers (2)

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Journal Article: Firms' and states’ responses to laxer environmental standards (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:wbk:wbrwps:8781

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