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The impact of environmental policies on productivity and market competition

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  • Sadeghzadeh, Javad

Abstract

While a large body of the literature on environmental policies has focused on the productivity impacts of regulations, less attention has been given to the link between environmental policies and market competition. In this paper, I develop a tractable model that incorporates variable mark-ups to study how a competitive environment is affected by environmental policies in a market with firm heterogeneity and endogenous abatement technology choice. The findings of this study are consistent with the Porter Hypothesis in the sense that environmental regulations motivate abatement technology adoption and enhance productivity and environmental quality. However, the productivity gain is mainly driven by reallocation of resources across firms rather than the induced abatement technological change. Tougher regulations harm the competitive environment by increasing average prices and market concentration. Social welfare also drops because in the absence of strong competition fewer variates are produced in equilibrium.

Suggested Citation

  • Sadeghzadeh, Javad, 2014. "The impact of environmental policies on productivity and market competition," Environment and Development Economics, Cambridge University Press, vol. 19(5), pages 548-565, October.
    • Handle: RePEc:cup:endeec:v:19:y:2014:i:05:p:548-565_00
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    Cited by:

    1. Golmohammadi, Amirmohsen & Kraft, Tim & Monemian, Seyedamin, 2024. "Setting the deadline and the penalty policy for a new environmental standard," European Journal of Operational Research, Elsevier, vol. 315(1), pages 88-101.
    2. Xinze Li & Luojia Wang & Kerui Du, 2023. "How do environmental regulations influence resource misallocation in China? The role of investment flows," Business Strategy and the Environment, Wiley Blackwell, vol. 32(1), pages 538-550, January.
    3. Yongmin Shang & Guoqing Lyu & Zefeng Mi, 2022. "Green Technology Transfer, Environmental Regulation, and Regional Green Development Chasm: Based on the Empirical Evidence from Yangtze River Delta," IJERPH, MDPI, vol. 19(21), pages 1-22, October.

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