Environmental regulation with and without commitment under irreversible investments

Jean-Philippe Nicolaï ()
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Jean-Philippe Nicolaï: ETH-Zürich

No 2015.19, Working Papers from FAERE - French Association of Environmental and Resource Economists

Abstract: This paper analyzes the long-term investment decisions of firms that are regulated by an emissions tax and that perceive a degree of market power in their respective output markets. Firms invest in abatement equipment that is fixed over the medium term (e.g., buying a new generator). This paper focuses on environmental regulation with and with- out commitment. In the commitment case, the government announces a long-run tax on emissions, and firms decide upon their investment levels. In the no-commitment case, the regulator announces a tax level and is free to modify it once firms have invested. This paper considers differentiated product goods and determines whether no-commitment regulation leads to more lenient or more stringent regulation than regulation with commitment.

Keywords: Pollution permits; Imperfect competition; Investment; Strategic effects. (search for similar items in EconPapers)
JEL-codes: L13 L51 Q50 (search for similar items in EconPapers)
Pages: 12 pages
Date: 2015-11
New Economics Papers: this item is included in nep-ene, nep-env, nep-reg and nep-res
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http://faere.fr/pub/WorkingPapers/Nicolai_FAERE_WP2015.19.pdf First version, 2015 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:fae:wpaper:2015.19

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