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Pollution Taxes When Firms Choose Technologies

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  • Gregory S. Amacher
  • Arun S. Malik

Abstract

We consider the properties of a pollution tax when the regulated firm has a discrete choice of technologies with which to reduce pollution. The firm's technology choice makes possible two sequences of play: the traditional one in which the regulator moves first, committing to a tax rate before the firm adopts a technology, and an alternative one in which the firm moves first by adopting a technology. We find that a range of pollution levels, including possibly the first‐best one, are unattainable when the regulator moves first. The regulator may be better able to achieve the first‐best outcome when the firm moves first.

Suggested Citation

  • Gregory S. Amacher & Arun S. Malik, 2002. "Pollution Taxes When Firms Choose Technologies," Southern Economic Journal, John Wiley & Sons, vol. 68(4), pages 891-906, April.
    • Handle: RePEc:wly:soecon:v:68:y:2002:i:4:p:891-906
    DOI: 10.1002/j.2325-8012.2002.tb00464.x
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