A Whiter Shade of Pale: on the Political Economy of Regulatory Instruments

Fridrik Mar Baldursson () and Nils-Henrik M. von der Fehr

No 29/2004, Memorandum from Oslo University, Department of Economics

Abstract: We consider an intertemporal policy game between changing governments that differ in their attitudes towards a particular feature of market outcomes, exemplified with environmental pollution. When in power, a government will choose policy instruments and set strictness of regulation with a view to influencing the policy of future, possibly different, governments. We demonstrate that a ‘brown’ government favours emission quotas over effluent taxes, as quotas establish property rights that are costly to reverse. Conversely, a ‘green’ government prefers to regulate by taxes, in order to limit the incentives of future ‘brown’ governments to ease regulations. Strategic behaviour tends to exaggerate policy differences (making ‘green’ governments ‘greener’ and ‘brown’ governments ‘browner’) compared to when such strategic considerations were not an issue.

Keywords: regulation; political economy; effluent taxes; tradable quotas; property rights; commitment; environmental management (search for similar items in EconPapers)
JEL-codes: D81 H23 L51 Q28 Q38 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-pbe, nep-pol and nep-reg
Date: 2004-12-04
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