The Effects of Bailouts and Soft Budget Constraints on the Environment

Joel Wood ()

Environmental & Resource Economics, 2013, vol. 54, issue 1, 127-137

Abstract: This paper investigates the effects of financial relief programs, commonly referred to as ‘bailouts’, on pollution. A partial equilibrium soft budget constraint model of the firm is developed to identify the effect of bailouts on the emission decisions of firms. The results from the model indicate that the expectation of bailouts increases ex ante emissions. A more stringent emissions tax is required to achieve the same level of emissions if bailouts are available than if bailouts are not available; however, a tradable permit system will maintain the same emissions level if bailouts are available as when bailouts are not available. Copyright Springer Science+Business Media B.V. 2013

Keywords: Bailouts; Moral hazard; Pollution; Soft budget constraints; Uncertainty; Q58; H23; P31 (search for similar items in EconPapers)
Date: 2013
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DOI: 10.1007/s10640-012-9584-0

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