Firm Preferences for Environmental Regulation
9 Pages Posted: 14 Dec 2014
Date Written: November 27, 2014
This paper summarizes the findings of two papers that examine the effect of environmental regulation on the production decisions and profits of polluting and green firms. Using a game-theoretic framework, we find conditions under which the green firm favors regulation (a standard finding), but also derive conditions for the opposite – and more surprising – scenario, whereby the green firm opposes environmental regulation, while the brown firm favors it. We also show that similar preference reversals can occur towards uniform and fine-tuned regulation. Our study highlights the role that firm heterogeneity plays in determining firm preferences towards environmental regulation.
Keywords: Cost asymmetry, Cost disadvantage, Emission fees, Green firms
JEL Classification: L13, D62, H23, Q50
Suggested Citation: Suggested Citation