Environmental Policy Choice Under Uncertainty

Tinbergen Institute Discussion Paper No. 2003-011/1

36 Pages Posted: 30 Jul 2003

See all articles by Ioulia V. Ossokina

Ioulia V. Ossokina

Erasmus University Rotterdam - General Economics

Otto H. Swank

Erasmus University Rotterdam - Department of Economics; Tinbergen Institute Rotterdam (TIR)

Date Written: February 5, 2003

Abstract

Market-based instruments are believed to create more efficient incentives for firms to adopt new technologies than command-and-control policies. We compare the effects of a direct technology regulation and of an adoption subsidy under asymmetric information about the costs of technological advances in pollution control. We show that the policy maker may want to commit to her policy. The reason is that uncertainty about adoption costs induces the policy maker to set subsidy levels that increase over time; firms, expecting higher subsidies in the future, postpone investment. Direct regulation offers a commitment possibility that allows to prevent firms from postponing investment.

Keywords: Pollution abatement technologies, Market-based instruments, Command-and-control instruments, Asymmetric information

JEL Classification: H23, O38

Suggested Citation

Ossokina, Ioulia V. and Swank, Otto H., Environmental Policy Choice Under Uncertainty (February 5, 2003). Tinbergen Institute Discussion Paper No. 2003-011/1. Available at SSRN: https://ssrn.com/abstract=384800 or http://dx.doi.org/10.2139/ssrn.384800

Ioulia V. Ossokina (Contact Author)

Erasmus University Rotterdam - General Economics ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands
+31(0)10 408 2850 (Phone)
+31(0)10 408 9031 (Fax)

Otto H. Swank

Erasmus University Rotterdam - Department of Economics ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Tinbergen Institute Rotterdam (TIR)

P.O. Box 1738
3000 DR Rotterdam
Netherlands
+31 10 4081448 (Phone)
+31 10 2120551 (Fax)

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