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Environmental Regulation: Supported by Polluting Firms, but Opposed by Green Firms

Felix Munoz-Garcia () and Sherzod Akhundjanov ()

No 2013-5, Working Papers from School of Economic Sciences, Washington State University

Abstract: This paper investigates the production decisions of polluting and green firms, and how their profits are affected by environmental regulation. We demonstrate that emission fees entail a negative effect on firms profits, since they increase unit production costs. However, fees can also produce a positive effect for a relatively inefficient firm, given that environmental regulation ameliorates its cost disadvantage. If such a disadvantage is sufficiently large, we show that the positive effect dominates, thus leading this firm to actually favor the introduction of environmental policy, while relatively efficient firms oppose regulation. Furthermore, we show that such support can not only originate from green firms but, more surprisingly, also from polluting companies.

Keywords: Cost asymmetries; Cost disadvantage; Emission fees; Green firms (search for similar items in EconPapers)
JEL-codes: D62 H23 L13 Q20 (search for similar items in EconPapers)
Pages: 51 pages
New Economics Papers: this item is included in nep-cdm, nep-ene, nep-env, nep-reg and nep-res
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