Environmental Policy and the Size Distribution of Firms

34 Pages Posted: 8 Mar 2015

See all articles by Jessica Coria

Jessica Coria

Department of Economics, University of Gothenburg

Efthymia Kyriakopoulou

University of Gothenburg ; Beijer Institute of Ecological Economics

Date Written: February 21, 2015

Abstract

In this paper we analyze the effects of environmental policies on the size distribution of firms. We model a stationary industry where the observed size distribution is a solution to the profit maximization problem of heterogeneous firms that differ in terms of their energy efficiency. We compare the equilibrium size distribution under emission taxes, uniform emission standards, and performance standards. Our results indicate that, unlike emission taxes and performance standards, emission standards introduce regulatory asymmetries favoring small firms. These asymmetries have significant detrimental effects on total output and total welfare, yet lead to reduced emissions and help preserve small businesses.

Keywords: Environmental regulations, energy efficiency, size distribution, emission taxes, emission standards, performance standards.

JEL Classification: Q58, L25, Q55

Suggested Citation

Coria, Jessica and Kyriakopoulou, Efthymia, Environmental Policy and the Size Distribution of Firms (February 21, 2015). Available at SSRN: https://ssrn.com/abstract=2574715 or http://dx.doi.org/10.2139/ssrn.2574715

Jessica Coria (Contact Author)

Department of Economics, University of Gothenburg ( email )

Vasagatan 1
Goteborg, 40530
Sweden

Efthymia Kyriakopoulou

University of Gothenburg ( email )

Vasagatan 1
P.O. Box 640
Gothenburg, 405 30
Sweden
46 (0)31 786 2641 (Phone)

HOME PAGE: http://economics.handels.gu.se/english/staff/senior_lecturers-lecturers-_researchers/efthymia-kyriak

Beijer Institute of Ecological Economics ( email )

Stockholm
United States

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