Environmental regulation with and without commitment under irreversible investments

Arbeitspapier

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 without 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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Economics Working Paper Series ; No. 13/187

Classification and Topics

• Classification: Wirtschaft ; Oligopoly and Other Imperfect Markets ; Environmental Economics: General ; Economics of Regulation
• Subject: Pollution permits ; imperfect competition ; investment ; strategic effects

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Nicolaï, Jean-Philippe
• Event: Veröffentlichung
• (who): ETH Zurich, CER-ETH - Center of Economic Research
• (where): Zurich
• (when): 2015

Further information

• Handle: http://hdl.handle.net/10419/171630
• Last update: 10.03.2025, 11:45 AM CET