Environmental Policy Choice under Uncertainty

Ioulia Ossokina and Otto Swank ()

No 03-011/1, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: Market-based instruments are believed to create more efficient incentives for firmsto adopt new technologies than command-and-control policies. We compare the effects of a directtechnology regulation and of an adoption subsidy under asymmetric information about the costsof technological advances in pollution control. We show that the policy maker may want tocommit to her policy. The reason is that uncertainty about adoption costs induces the policymaker to set subsidy levels that increase over time; firms, expecting higher subsidies in thefuture, postpone investment. Direct regulation offers a commitment possibility that allows toprevent firms from postponing investment.

Keywords: Pollution abatement technologies; Market-based instruments; Command-and-control. (search for similar items in EconPapers)
JEL-codes: H23 O38 (search for similar items in EconPapers)
Date: 2003-02-14
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Persistent link: https://EconPapers.repec.org/RePEc:tin:wpaper:20030011

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