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The Strategic Use of Innovation to Influence Environmental Policy: Taxes versus Standards

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  • Moner-Colonques Rafael

    (Department of Economic Analysis and ERI-CES, University of Valencia, Valencia, Spain)

  • Rubio Santiago J.

    (Department of Economic Analysis and ERI-CES, University of Valencia, Valencia, Spain)

Abstract

This paper evaluates the strategic behavior of a polluting monopolist to influence environmental policy, either with taxes or with standards, comparing two alternative policy games. The first of the games assumes that the regulator commits to an ex-ante level of the policy instrument. The second one is the time-consistent policy game. We find that the strategic behavior of the firm is welfare improving and leads to more environmental innovation than under regulatory commitment if a tax is used to control pollution. However, the contrary occurs if an emission standard is used. Under commitment, it is shown that both policy instruments are equivalent. We conclude that the optimal environmental policy is to use an emission tax since it yields the same welfare level than an emission standard for a committed regulator yet a larger welfare for a non-committed regulator.

Suggested Citation

  • Moner-Colonques Rafael & Rubio Santiago J., 2016. "The Strategic Use of Innovation to Influence Environmental Policy: Taxes versus Standards," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 16(2), pages 973-1000, April.
    • Handle: RePEc:bpj:bejeap:v:16:y:2016:i:2:p:973-1000:n:3
    DOI: 10.1515/bejeap-2015-0009
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    References listed on IDEAS

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    1. Juan-Pablo Montero, 2011. "End of the line: A Note on Environmental Policy and Innovation when Governments cannot Commit," Documentos de Trabajo 394, Instituto de Economia. Pontificia Universidad Católica de Chile..
    2. Montero, Juan Pablo, 2011. "A note on environmental policy and innovation when governments cannot commit," Energy Economics, Elsevier, vol. 33(S1), pages 13-19.
    3. Yasunori Ouchida & Daisaku Goto, 2014. "Environmental Research Joint Ventures and Time-Consistent Emission Tax," Working Papers 2014.35, Fondazione Eni Enrico Mattei.
    4. Lambert Schoonbeek & Frans Vries, 2009. "Environmental taxes and industry monopolization," Journal of Regulatory Economics, Springer, vol. 36(1), pages 94-106, August.
    5. Tarui, Nori & Polasky, Stephen, 2005. "Environmental regulation with technology adoption, learning and strategic behavior," Journal of Environmental Economics and Management, Elsevier, vol. 50(3), pages 447-467, November.
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    Citations

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    Cited by:

    1. Marie-Laure Cabon-Dhersin & Natacha Raffin, 2024. "Cooperation in green R &D and environmental policies: tax or standard," Journal of Regulatory Economics, Springer, vol. 66(2), pages 205-237, December.
    2. García-Alaminos, Ángela & Rubio, Santiago J., 2019. "Emission Taxes, Feed-in Subsidies and the Investment in a Clean Technology by a Polluting Monopoly," ES: Economics for Sustainability 291524, Fondazione Eni Enrico Mattei (FEEM) > ES: Economics for Sustainability.
    3. Martín-Herrán, Guiomar & Rubio, Santiago J., 2016. "The Strategic Use of Abatement by a Polluting Monopoly," ETA: Economic Theory and Applications 244532, Fondazione Eni Enrico Mattei (FEEM).
    4. Ángela García-Alaminos & Santiago J. Rubio, 2021. "Emission taxes and feed-in subsidies in the regulation of a polluting monopoly," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 12(2), pages 255-279, June.
    5. Dieter Schmidtchen & Jenny Helstroffer & Christian Koboldt, 2021. "Regulatory failure and the polluter pays principle: why regulatory impact assessment dominates the polluter pays principle," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 23(1), pages 109-144, January.
    6. Yasunori Ouchida & Daisaku Goto, 2022. "Strategic non‐use of the government's precommitment ability for emissions taxation: Environmental R&D formation in a Cournot duopoly," Australian Economic Papers, Wiley Blackwell, vol. 61(1), pages 181-206, March.
    7. Marie-Laure Cabon-Dhersin & Natacha Raffin, 2023. "Cooperation in Green R&D and Environmental Policies: Taxes or Standards," Working Papers hal-03610541, HAL.
    8. Dong, Quan & Chang, Yang-Ming, 2020. "Emission taxes vs. environmental standards under partial ownership arrangements," Research in Economics, Elsevier, vol. 74(3), pages 250-262.
    9. Theilen, Bernd & Tomori, Françeska, 2023. "Regulatory commitment versus non-commitment: Electric vehicle adoption under subsidies and emission standards," Resource and Energy Economics, Elsevier, vol. 74(C).
    10. Alessio D’Amato & Bouwe R. Dijkstra, 2018. "Adoption incentives and environmental policy timing under asymmetric information and strategic firm behaviour," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 20(1), pages 125-155, January.
    11. Moner-Colonques, R. & Rubio, S., 2015. "The timing of environmental policy in a duopolistic market," Economia Agraria y Recursos Naturales, Spanish Association of Agricultural Economists, vol. 15(01).
    12. Ye Duan & Nan Li & Hailin Mu & Shusen Gui, 2017. "Research on CO 2 Emission Reduction Mechanism of China’s Iron and Steel Industry under Various Emission Reduction Policies," Energies, MDPI, vol. 10(12), pages 1-24, December.
    13. Yanfang Zhang & Qianwen Tan & Yuchang Ji, 2023. "Input subsidy versus output subsidy for green R&D in a supply chain," Journal of International Development, John Wiley & Sons, Ltd., vol. 35(1), pages 97-126, January.
    14. Guiomar Martín-Herrán & Santiago J. Rubio, 2016. "The Strategic Use of Abatement by a Polluting Monopoly," Working Papers 2016.58, Fondazione Eni Enrico Mattei.
    15. Mauricio G. Villena & María José Quinteros, 2024. "Corporate Social Responsibility, Environmental Emissions and Time-Consistent Taxation," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 87(1), pages 219-255, January.
    16. Wensi Zhang & Jing Xiao & Lingfei Cai, 2020. "Joint Emission Reduction Strategy in Green Supply Chain under Environmental Regulation," Sustainability, MDPI, vol. 12(8), pages 1-24, April.
    17. Naoto Aoyama & Emilson C.D. Silva, 2017. "Asymmetric Innovation Agreements under Environmental Regulation," CESifo Working Paper Series 6782, CESifo.
    18. Naoto Aoyama & Emilson Caputo Delfino Silva, 2022. "Endogenous Abatement Technology Agreements under Environmental Regulation," Games, MDPI, vol. 13(2), pages 1-30, April.
    19. Soo Keong Yong & Lana Friesen & Stuart McDonald, 2018. "Emission Taxes, Clean Technology Cooperation, And Product Market Collusion: Experimental Evidence," Economic Inquiry, Western Economic Association International, vol. 56(4), pages 1950-1979, October.
    20. Fukuda, Katsufumi & Ouchida, Yasunori, 2020. "Corporate social responsibility (CSR) and the environment: Does CSR increase emissions?," Energy Economics, Elsevier, vol. 92(C).

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