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The Effects of Bailouts and Soft Budget Constraints on the Environment

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  • Joel Wood

Abstract

This paper investigates the effects of financial relief programs, commonly referred to as ‘bailouts’, on pollution. A partial equilibrium soft budget constraint model of the firm is developed to identify the effect of bailouts on the emission decisions of firms. The results from the model indicate that the expectation of bailouts increases ex ante emissions. A more stringent emissions tax is required to achieve the same level of emissions if bailouts are available than if bailouts are not available; however, a tradable permit system will maintain the same emissions level if bailouts are available as when bailouts are not available. Copyright Springer Science+Business Media B.V. 2013

Suggested Citation

  • Joel Wood, 2013. "The Effects of Bailouts and Soft Budget Constraints on the Environment," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 54(1), pages 127-137, January.
    • Handle: RePEc:kap:enreec:v:54:y:2013:i:1:p:127-137
    DOI: 10.1007/s10640-012-9584-0
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    References listed on IDEAS

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    More about this item

    Keywords

    Bailouts; Moral hazard; Pollution; Soft budget constraints; Uncertainty; Q58; H23; P31;
    All these keywords.

    JEL classification:

    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • P31 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Socialist Enterprises and Their Transitions

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