Summary
Market-based instruments are believed to create more efficient incentives for firms to adopt new technologies than command-and-control policies. We compare the effects of a direct technology regulation and of an adoption subsidy under asymmetric information about the costs of technological advances in controlling the socially undesirable activities. We show that the policy maker may want to commit to her policy. The reason is that asymmetric information about adoption costs induces the policy maker to set subsidy levels that increase over time; firms, expecting higher subsidies in the future, postpone investment. Direct regulation offers a commitment possibility that allows to prevent firms from postponing investment.
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The research of the the first author was sponsored by the Netherlands Organization for Scientific Research NWO. We thank the participants of the First World Meeting of the Public Choice Society on March 29–April 1, 2007 in Amsterdam, and especially Frans van Winden, for comments.
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Open Access This is an open access article distributed under the terms of the Creative Commons Attribution Noncommercial License (https://creativecommons.org/licenses/by-nc/2.0), which permits any noncommercial use, distribution, and reproduction in any medium, provided the original author(s) and source are credited.
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Ossokina, I.V., Swank, O.H. Adoption Subsidy Versus Technology Standards Under Asymmetric Information. De Economist 156, 241–267 (2008). https://doi.org/10.1007/s10645-008-9093-2
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DOI: https://doi.org/10.1007/s10645-008-9093-2