Strategic Behavior and the Environment > Vol 6 > Issue 1-2

Firm Preferences for Environmental Policy: Industry Uniform or Firm Specific?

Sherzod B. Akhundjanov, Department of Applied Economics, Utah State University, USA, sherzod.akhundjanov@usu.edu Félix Muñoz-García, School of Economic Sciences, Washington State University, USA, fmunoz@wsu.edu
 
Suggested Citation
Sherzod B. Akhundjanov and Félix Muñoz-García (2016), "Firm Preferences for Environmental Policy: Industry Uniform or Firm Specific?", Strategic Behavior and the Environment: Vol. 6: No. 1-2, pp 135-180. http://dx.doi.org/10.1561/102.00000066

Published: 15 Dec 2016
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Subjects
Environmental Economics,  Industrial Organization: Regulatory Economics,  Public Economics: Environmental Taxation
 
Keywords
JEL Codes: L13D62H23Q50
Cost asymmetrycost disadvantageemission feesgreen firms
 

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In this article:
Introduction
Related Literature
Model
Industry Equilibrium
The Planning Problem
Profit Analysis
Welfare Comparisons
Policy Implications and Conclusion
Appendix A — Emissions and Costs in Different Industries
Appendix B — Significantly Clean Green Firm
Appendix C — Proofs
References

Abstract

This paper examines the effect of uniform and firm-specific environmental regulation on the production decisions, and profits, of polluting and green firms. While both types of regulation increase firms' costs and thus entail a negative effect on profits, firm-specific regulation can also yield a positive effect for relatively inefficient firms by alleviating their cost disadvantage. When such cost disadvantage is sufficiently large, we show that the positive effect of firm-specific regulation dominates its negative effect, leading inefficient (efficient) firms to support (oppose) socially optimal regulation. Furthermore, our findings indicate that such support for environmental policy can originate not only from the most common ally (the green firm) but also from polluting firms.

DOI:10.1561/102.00000066