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

D'Amato, Alessio; Dijkstra, Bouwe

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.

Citation

D'Amato, A., & Dijkstra, B. (in press). Adoption incentives and environmental policy timing under asymmetric information and strategic firm behaviour. Environmental Economics and Policy Studies, https://doi.org/10.1007/s10018-017-0187-4

• Journal Article Type: Article
• Acceptance Date: May 19, 2017
• Online Publication Date: Jun 19, 2017
• Deposit Date: Jul 10, 2017
• Publicly Available Date: Jul 10, 2017
• Journal: Environmental Economics and Policy Studies
• Print ISSN: 1432-847X
• Electronic ISSN: 1867-383X
• Publisher: Springer Verlag
• Peer Reviewed: Peer Reviewed
• DOI: https://doi.org/10.1007/s10018-017-0187-4
• Keywords: Asymmetric information, Commitment, Rime consistency, Emission taxation, Quotas
• Public URL: https://nottingham-repository.worktribe.com/output/866767
• Publisher URL: https://link.springer.com/article/10.1007%2Fs10018-017-0187-4
• Additional Information: The final publication is available at Springer via http://dx.doi.org/10.1007/s10018-017-0187-4
• Contract Date: Jul 10, 2017