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Can Polluting Firms Favor Regulation?

Felix Munoz-Garcia () and Sherzod Akhundjanov ()

The B.E. Journal of Economic Analysis & Policy, 2016, vol. 16, issue 4, 23

Abstract: This paper investigates the production decisions of firms with asymmetric environmental damages, and how their profits are affected by environmental regulation. We demonstrate that emission fees entail a negative effect on firms’ profits, since they increase unit production costs. However, fees can also produce a positive effect for a relatively inefficient firm, given that environmental regulation mitigates its cost disadvantage. If such a disadvantage is sufficiently large, we show that the positive effect dominates, thus leading this firm to actually favor the introduction of environmental policy, while the relatively efficient firm opposes regulation. Furthermore, we show that such support can originate from polluting companies.

Keywords: cost asymmetries; cost disadvantage; emission fees; green firms (search for similar items in EconPapers)
JEL-codes: L13 D62 H23 Q20 (search for similar items in EconPapers)
Date: 2016
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DOI: 10.1515/bejeap-2015-0163

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