Adaptation and Environmental Policy. Is Their Coexistence Welfare Improving?

31 Pages Posted: 1 Nov 2022

See all articles by Felix Munoz-Garcia

Felix Munoz-Garcia

Washington State University - School of Economic Sciences

Ana Espinola-Arredondo

Washington State University

Françeska Tomori

Universitat Rovira i Virgili

Abstract

We examine how an extreme climate event affects the incentives of regulators to invest in adaptation measures that reduce the impact on firms production costs, and how this investment affects environmental policy and firms incentives to invest in abatement. Different government agencies implement these policies (adaptation and emission fees) and can exhibit symmetric or asymmetric preferences for pollution. We find that investment in adaptation and abatement are substitutes, and more likely climate events decrease firms investment in abatement. We also find that severe climate events can induce a lower investment in adaptation, as climate events can be used as a tool to reduce expected pollution. In addition, we show that symmetric agencies induce a lower investment in adaptation. Finally, we identify the welfare effects of adaptation and environmental policy, evaluating welfare gains/losses from each policy.

Keywords: Adaptation, climate events, Environmental Policy, abatement, welfare gains

Suggested Citation

Munoz-Garcia, Felix and Espinola-Arredondo, Ana and Tomori, Françeska, Adaptation and Environmental Policy. Is Their Coexistence Welfare Improving?. Available at SSRN: https://ssrn.com/abstract=4263835 or http://dx.doi.org/10.2139/ssrn.4263835

Felix Munoz-Garcia (Contact Author)

Washington State University - School of Economic Sciences ( email )

P.O. Box 646210
Hulbert Hall 101
Pullman, WA 99164-6210
United States

HOME PAGE: http://www.ses.wsu.edu/People/munoz.htm

Ana Espinola-Arredondo

Washington State University ( email )

Wilson Rd.
College of Business
Pullman, WA 99164
United States

Françeska Tomori

Universitat Rovira i Virgili

Spain

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