Strategic Choice of Market Instrument
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Date
2017-06
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
Scientific Research
Abstract
This paper proposes a model where both regulator and industry behave strategically
to endogenously choose the optimal market instrument. The regulator
payoff function includes political gains from investment in abatement and
improvement in the provision of the environmental good in addition to the
efficient choice of the instrument level. Whereas the industry’s objective is to
minimize abatement costs. Under plausible conditions, the model suggests
that quantity instrument is favorable to the regulator. Also, industry with high
cost of abatement has a better incentive to invest in clean technology. Regulator
gains from increasing the provision of environmental good and from industry
investing in abatement.
Description
Keywords
Carbon Tax, Quantity, Environmental Policy
Citation
Theoretical Economics Letters, 2017, 7, 1029-1042