Advertisement

Strategic Emission Fees: Using Green Technology to Deter Entry

  • Ana Espínola-ArredondoEmail author
  • Felix Munoz-Garcia
  • Boying Liu
Article
  • 8 Downloads

Abstract

We consider a sequential-move game in which a polluting monopolist chooses whether to acquire a green technology, and a potential entrant responds deciding whether to join the market and, upon entry, whether to invest in clean technology. Our paper compares two models: one in which environmental regulation is strategically set before firms’ decisions; and another where regulation is selected after firms’ entry and investment decisions. We show that a proactive regulation that strategically anticipates firms’ behavior can implement different market structures. In particular, policy makers can choose emission fees to induce competition and/or investment in clean technology, giving rise to market structures that maximize social welfare.

Keywords

Green technology adoption Market structure Emission tax Strategic regulation 

JEL Classification

H23 L12 Q58 

Notes

Acknowledgments

We would like to thank Luis Gautier, Robert Rosenman, Richard Shumway, and Charles James for their helpful comments and discussions.

References

  1. Buchanan JM (1969) External diseconomies, corrective taxes and market structure. Am Econ Rev 59:174–177Google Scholar
  2. Buchanan JM, Tullock G (1975) Polluters’ profits and political response: direct controls versus taxes. Am Econ Rev 65(10):139–147Google Scholar
  3. Espinola-Arredondo A, Munoz-Garcia F (2013) When does environmental regulation facilitate entry-deterring practices. J Environ Econ Manag 65(1):133–152CrossRefGoogle Scholar
  4. Friedrich HE, Mordike BL (2006) Magnesium technology: metallurgy, design data, and applications. Springer, BerlinGoogle Scholar
  5. Helland E, Matsuno M (2003) Pollution abatement as a barrier to entry. J Regul Econ 24:243–259CrossRefGoogle Scholar
  6. Heyes A (2009) Is environmental bad for competition? A survey. J Regul Econ 36:1–28CrossRefGoogle Scholar
  7. Katsoulacos Y, Xepapadeas A (1996) Environmental innovation, spillovers and optimal policy rules. Environmental Policy and Market Structure. Kluwer Academic Publishers, Dordrecht, pp 143–150CrossRefGoogle Scholar
  8. Krysiak FC (2008) Prices vs. quantities: the effects on technology choice. J Public Econ 92:1275–1287CrossRefGoogle Scholar
  9. Maloney MT, McCormick RE (1982) A positive theory of environmental quality regulation. J Law Econ 25:99–123CrossRefGoogle Scholar
  10. Martín-Herrán G, Rubio SJ (2016) The Strategic Use of Abatement by a Polluting Monopoly. Research Report, Fondazione Eni Enrico Mattei (FEEM), Aug. 23rdGoogle Scholar
  11. Montero JP (2002) Market structure and environmental innovation. J Appl Econ 5(2):293–325CrossRefGoogle Scholar
  12. Parry I (1998) Pollution regulation and the efficiency gains from technological innovation. J Regul Econ 14(3):229–254CrossRefGoogle Scholar
  13. Perino G, Requate T (2012) Does more stringent environmental regulation induce or reduce technology adoption? When the rate of technology adoption is inverted U-shaped. J Environ Econ Manag 64:456–467CrossRefGoogle Scholar
  14. Petrakis E, Xepapadeas A (2001) To commit or not to commit: environmental policy in imperfectly competitive markets. Working Papers 0110, University of Crete, Department of EconomicsGoogle Scholar
  15. Petrakis E, Xepapadeas A (2003) Location decisions of a polluting firm and the time consistency of environmental policy. Resour Energy Econ 25(2):197–214CrossRefGoogle Scholar
  16. Porter ME, van der Linde C (1995) Toward a new conception of the environment-competitiveness relationship. J Econ Perspect 9:97–118CrossRefGoogle Scholar
  17. Requate T (2005a) Dynamic incentives by environmental policy instruments—a survey. Ecol Econ 54:175–195Google Scholar
  18. Requate T (2005b) Timing and commitment of environmental policy, adoption of new technology, and repercussions on R&D. Environ Resour Econ 31:175–199Google Scholar
  19. Requate T, Unold W (2003) Environmental policy incentives to adopt advanced abatement technology: will the true ranking please stand up. Eur Econ Rev 47(1):125–146CrossRefGoogle Scholar
  20. Schoonbeek L, de Vries FP (2009) Environmental taxes and industry monopolization. J Regul Econ 36(1):94–106CrossRefGoogle Scholar
  21. Storrøsten HB (2015) Prices vs. quantities with endogenous cost structure and optimal policy. Resour Energy Econ 41:143–163CrossRefGoogle Scholar
  22. Tarui N, Polasky S (2005) Environmental regulation with technology adoption, learning and strategic behavior. J Environ Econ Manag 50(3):447–467CrossRefGoogle Scholar
  23. Ulph A, Ulph D (2013) Optimal climate change policies when governments cannot commit. Environ Resour Econ 56(2):161–176CrossRefGoogle Scholar
  24. Zhao J (2003) Irreversible abatement investment under cost uncertainties: tradable emission permits and emissions charges. J Public Econ 87(12):2765–2789CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2019

Authors and Affiliations

  • Ana Espínola-Arredondo
    • 1
    Email author
  • Felix Munoz-Garcia
    • 2
  • Boying Liu
    • 3
  1. 1.School of Economic SciencesWashington State UniversityPullmanUSA
  2. 2.School of Economic SciencesWashington State UniversityPullmanUSA
  3. 3.School of Economic SciencesWashington State UniversityPullmanUSA

Personalised recommendations