Adoption incentives and environmental policy timing under asymmetric information and strategic firm behaviour

D'Amato, Alessio and Dijkstra, Bouwe (2017) Adoption incentives and environmental policy timing under asymmetric information and strategic firm behaviour. Environmental Economics and Policy Studies . ISSN 1867-383X

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Abstract

We consider the incentives of a single firm to invest in a cleaner technology under emission quotas and emission taxation. We assume asymmetric information about the firm's cost of employing the new technology. Policy is set either before the firm invests (commitment) or after (time consistency). Contrary to conventional wisdom, we find that with commitment (time consistency), quotas give higher (lower) investment incentives than taxes. With quotas (taxes), commitment generally leads to higher (lower) welfare than time consistency. Under commitment with quadratic abatement costs and environmental damages, a modified Weitzman rule applies and quotas usually lead to higher welfare than taxes.

Item Type: Article
Additional Information: The final publication is available at Springer via http://dx.doi.org/10.1007/s10018-017-0187-4
Keywords: Asymmetric information, Commitment, Rime consistency, Emission taxation, Quotas
Schools/Departments: University of Nottingham, UK > Faculty of Social Sciences > School of Economics
Identification Number: 10.1007/s10018-017-0187-4
Depositing User: Dijkstra, Bouwe
Date Deposited: 10 Jul 2017 09:51
Last Modified: 10 Jul 2017 09:55
URI: http://eprints.nottingham.ac.uk/id/eprint/44041

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