Market Structure and Technology Diffusion Incentives Under Alternative Environmental Policy Schemes
CentER Discussion Paper No. 2004-95
34 Pages Posted: 12 Nov 2004
Date Written: August 2004
The paper compares emission taxes, subsidies, permits and credits with respect to the incentives they create to enhance technology diffusion under imperfect competition. Forms can adopt a dirty technology or a clean abatement technology. When the clean and dirty products are perfect substitutes, and clean firms face a net absolute advantage over dirty firms, permits and taxes provide the strongest incentive, followed by credits and subsidies respectively. This ranking order is reversed if there is a distortion on output. Subsidies can neutralize this distortion; subsidies stimulate output supply, which would normally be lower than optimal under perfect competition.
Keywords: Market structure, diffusion, incentives, environmental policy, product differentiation
JEL Classification: L13, Q28, O30
Suggested Citation: Suggested Citation