Incentives for Innovation in Pollution Control: Emission Standards Revisited

Juergen Dietz () and Peter Michaelis ()
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Juergen Dietz: University of Augsburg, Department of Economics
Peter Michaelis: University of Augsburg, Department of Economics

No 263, Discussion Paper Series from Universitaet Augsburg, Institute for Economics

Abstract: Conventional analysis of the economics of environmental policy usually claims that emission taxes induce a stronger incentive for an improvement in pollution abatement technologies compared to emission standards. In contrast, recent empirical studies reveal that there is no systematic relationship between improvements in pollution abatement technologies and the policy instrument chosen. The present paper tries to clarify this contradiction. In the first step the paper shows that the conventional model of innovation in pollution control under different policy regimes is deficient in at least two ways: It neglects policy impacts on the firms’ output level and it assumes a rather unrealistic type of emission standard. In the second step the paper presents a more elaborated model which tries to overcome these shortcomings. Using this model it is shown that the impact on innovation in pollution control caused by taxes and standards strongly depends on the scale of technical progress as well as on the cost structure of the firm under consideration such that there is no unique ranking of the two policies. Finally, the paper discusses the policy implications of these findings.

Keywords: emission standards; emission taxes; incentives to innovate (search for similar items in EconPapers)
JEL-codes: H23 Q55 (search for similar items in EconPapers)
Date: 2004-05
New Economics Papers: this item is included in nep-env and nep-res
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:aug:augsbe:0263

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