Pollution Abatement Investment When Firms Lobby Against Environmental Regulation

Y. Hossein Farzin () and Jinhua Zhao

No 2003.82, Working Papers from Fondazione Eni Enrico Mattei

Abstract: In this paper, we study a firm’s optimal lobby behavior and its effect on investment in pollution abatement capital. We develop a dynamic framework where a representative firm can invest in both abatement and lobby capital in response to a possible future increase in pollution tax. We show that when the firm lobbies against the scale of the tax increase at a predetermined date, it should act like an occasional lobbyer by investing a lump-sum (optimal) amount in the lobby capital only at that date. But, to delay the new tax, it should act like a habitual lobbyer by investing continuously and at increasing rates over an optimal time period. We show that lobby expenditure crowds out investment in abatement capital and that this effect is stronger the more efficient is the lobbying activity. Further, we show that while uncertainty about the magnitude of the tax reduces the firm’s incentive to lobby, uncertainty about the timing of the new tax increases it.

Keywords: Pollution Abatement; Environmental Regulation (search for similar items in EconPapers)
JEL-codes: D81 D92 H32 Q28 (search for similar items in EconPapers)
Date: 2003-09
New Economics Papers: this item is included in nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:fem:femwpa:2003.82

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