Journal of Regulatory Economics

, Volume 50, Issue 2, pp 146–163 | Cite as

Profit-enhancing environmental policy: uninformed regulation in an entry-deterrence model

  • Ana Espínola-Arredondo
  • Félix Muñoz-García
Original Article


This paper considers a polluting firm, subject to environmental policy, who seeks to deter the entry of potential competitors. We investigate under which conditions firm profits are enhanced by regulation. We show that, contrary to common belief, inefficient firms may support environmental regulation when their production is especially polluting. In addition, we evaluate how this result is affected by the regulator’s prior beliefs accuracy and the environmental damage from pollution.


Entry deterrence Signaling Environmental policy Informational advantage Profits 

JEL Classification

D82 H23 L12 Q5 



We are very grateful to the editor, Michael Crew, and two anonymous referees for their valuable comments and their constructive suggestions. We would also like to thank all participants of the 13th International Industrial Organization Conference, especially to Ramya Shankar for her insightful comments and suggestions.


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Copyright information

© Springer Science+Business Media New York 2016

Authors and Affiliations

  • Ana Espínola-Arredondo
    • 1
  • Félix Muñoz-García
    • 2
  1. 1.School of Economic SciencesWashington State UniversityPullmanUSA
  2. 2.School of Economic SciencesWashington State UniversityPullmanUSA

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