How Disagreement About Social Costs Leads to Inefficient Energy-Productivity Investment

Achim Voß

Environmental & Resource Economics, 2015, vol. 60, issue 4, 548 pages

Abstract: Public energy-productivity investment influences the amount of future energy consumption. If a present government expects its successor to value the social costs of fuel usage differently, this adds a strategic component to its investment considerations. We analyze this governmental time-inconsistency situation as a sequential game. In particular, we show how the expectation of a more conservative party taking over makes a “green” government choose an investment level that is inefficient, in that neither of the parties would prefer it to the investment level of a permanent green government. Under some circumstances, the opposition would even prefer the government definitely to stay in power: The gain from avoiding a strategic investment then outweighs the loss of not being able to regulate energy consumption. We also analyze the welfare gains from binding agreements. Copyright Springer Science+Business Media Dordrecht 2015

Keywords: Political economics; Energy efficiency; Energy externalities; Strategic investment; Time-inconsistency; Q48; Q58; Q55; D72 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s10640-014-9778-8

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