Producer Surplus and Subsidization of Pollution Control Device: A Non-monotonic Relationship

Benoit Laplante

Journal of Industrial Economics, 1990, vol. 39, issue 1, 15-23

Abstract: Regulators have been concerned with the impact of environmental regulation on the profitability of regulated firms: there have been numerous grants and subsidy programs to reduce the cost of emission control equipment. Intuitively, there should be a monotonically increasing relationship between profits and the amount of subsidization. However, the author shows that this may not be so since regulation may establish a collusive outcome amongst oligopolistic competitors. The role of the subsidization policy may then be seen as the following: given Cournot players, the regulator may subsidize the emission control device to prevent the industry from reaching a profit superior outcome. Copyright 1990 by Blackwell Publishing Ltd.

Date: 1990
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