Profit-enhancing environmental policy: uninformed regulation in an entry-deterrence model

Ana Espinola-Arredondo and Felix Munoz-Garcia

Journal of Regulatory Economics, 2016, vol. 50, issue 2, No 2, 146-163

Abstract: Abstract This paper considers a polluting firm, subject to environmental policy, who seeks to deter the entry of potential competitors. We investigate under which conditions firm profits are enhanced by regulation. We show that, contrary to common belief, inefficient firms may support environmental regulation when their production is especially polluting. In addition, we evaluate how this result is affected by the regulator’s prior beliefs accuracy and the environmental damage from pollution.

Keywords: Entry deterrence; Signaling; Environmental policy; Informational advantage; Profits (search for similar items in EconPapers)
JEL-codes: D82 H23 L12 Q5 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s11149-016-9298-2

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