The Effects of Emissions Standards on Industry in the Short Run and Long Run

26 Pages Posted: 15 Oct 2000  

Y. Hossein Farzin

University of California, Davis - Department of Agricultural and Resource Economics; Oxford Centre for the Analysis of Resource Rich Economies (OxCarre)

Date Written: January 2000

Abstract

Industrialists often claim that, by rendering firms unprofitable and hence forcing them out of business, stricter emissions standards reduce the industry output and competition. This paper considers situations where firms' pollution reduction increases the industry demand, but because of inability to co-ordinate their emissions reductions, and thus free riding problem, they are unable to act in their own collective interest. For such situations, the paper studies the effects of emissions standards on the equilibrium in an oligopoly market both at the firm and industry level and in the long run as well as short run. It shows conditions under which a stricter standard leads to a larger number of firms in the industry, a greater industry output, and a lower total pollution in the long run; and to higher levels of firms' profits and output in the short run. It also shows that for the industry to survive, a minimum pollution standard may be necessary.

Keywords: environmental standard, abatement cost, demand effect, industry output

JEL Classification: H23, D62, D43, Q28

Suggested Citation

Farzin, Y. Hossein, The Effects of Emissions Standards on Industry in the Short Run and Long Run (January 2000). FEEM Working Paper No. 15.2000. Available at SSRN: https://ssrn.com/abstract=229255 or http://dx.doi.org/10.2139/ssrn.229255

Y. Hossein Farzin (Contact Author)

University of California, Davis - Department of Agricultural and Resource Economics ( email )

One Shields Avenue
Davis, CA 95616
United States
530-752-7610 (Phone)
530-752-5614 (Fax)

HOME PAGE: http://farzin.ucdavis.edu/

Oxford Centre for the Analysis of Resource Rich Economies (OxCarre) ( email )

University of Oxford, Department of Economics
Manor Road
Oxford, OX1 4AU
United Kingdom

HOME PAGE: http://www.oxcarre.ox.ac.uk

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