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

Author

Listed:
  • Felix Munoz-Garcia
  • Sherzod Akhundjanov

    (School of Economic Sciences, Washington State University)

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.

Suggested Citation

  • Felix Munoz-Garcia & Sherzod Akhundjanov, "undated". "Environmental Regulation: Supported by Polluting Firms, but Opposed by Green Firms," Working Papers 2013-5, School of Economic Sciences, Washington State University.
    • Handle: RePEc:wsu:wpaper:munoz-13
    as

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    File URL: http://faculty.ses.wsu.edu/WorkingPapers/Munoz/WP2013-5.pdf
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    References listed on IDEAS

    as
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    5. Baron, David P., 2008. "Managerial contracting and corporate social responsibility," Journal of Public Economics, Elsevier, vol. 92(1-2), pages 268-288, February.
    6. Maloney, Michael T & McCormick, Robert E, 1982. "A Positive Theory of Environmental Quality Regulation," Journal of Law and Economics, University of Chicago Press, vol. 25(1), pages 99-123, April.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Cost asymmetries; Cost disadvantage; Emission fees; Green firms;
    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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