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Environmental Regulation: Supported by Polluting Firms but Opposed by Green Firms?

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  • Akhundjanov, Sherzod
  • Munoz-Garcia, Felix

Abstract

This paper investigates the production decisions of polluting and green firms, and how their profits are affected by environmental regulation. We demonstrate that emission fees entail a negative effect on firms profits, since they increase unit production costs. However, fees can also produce a positive effect for a relatively inefficient firm, given that environmental regulation ameliorates its cost disadvantage. If such a disadvantage is sufficiently large, we show that the positive effect dominates, thus leading this firm to actually favor the introduction of environmental policy, while relatively efficient firms oppose regulation. Furthermore, we show that such support can not only originate from green firms but, more surprisingly, also from polluting companies.
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Suggested Citation

  • Akhundjanov, Sherzod & Munoz-Garcia, Felix, 2013. "Environmental Regulation: Supported by Polluting Firms but Opposed by Green Firms?," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150202, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea13:150202
    DOI: 10.22004/ag.econ.150202
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    More about this item

    Keywords

    Environmental Economics and Policy; Industrial Organization; Research and Development/Tech Change/Emerging Technologies;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q20 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - General

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