Instrument choice in the case of multiple externalities

Harri Nikula
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Harri Nikula: Faculty of Management and Business, Tampere University

No 2028, Working Papers from Tampere University, Faculty of Management and Business, Economics

Abstract: We study market-based regulation in a polluting industry that produces two externalities at the same time. There is a negative externality (emissions) to which every firm in the industry contributes, and a positive externality (technological spillover), so that an additional application of green technology becomes easier as the number of appliers increases. An optimal policy is shown to consist of a uniform emission price across polluting firms and a subsidy to early users of green technology. We also show that the presence of the second externality strongly affects the instrument choice under uncertainty between taxes and tradable permits, and that the influence depends on the design of the instruments. More specifically, it depends on whether early users of green technology are subsidized or not.

Keywords: Green production; emission taxation; internalizing externalities; spillover effect; tradable emission permits; uncertainty (search for similar items in EconPapers)
JEL-codes: D62 D81 H23 Q58 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2020-05
New Economics Papers: this item is included in nep-ene, nep-env, nep-reg and nep-res
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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http://urn.fi/URN:ISBN:978-952-03-1593-1 First version, 2020 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:tam:wpaper:2028

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