Self-Financing Environmental Mechanisms

44 Pages Posted: 28 Sep 2005

See all articles by Joerg Breitscheidel

Joerg Breitscheidel

Center for European Economic Research (ZEW)

Hans Gersbach

ETH Zurich - CER-ETH -Center of Economic Reseaarch; IZA Institute of Labor Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

Date Written: August 2005

Abstract

We explore the design of self-financing tax/subsidy mechanisms to solve hold-up problems in environmental regulation. Under Cournot competition, announcing the subsidy rate seems to be preferable to announcing the tax rate. Moreover, for constant marginal damage the hold-up problem can always be solved by setting subsidies. Under Bertrand competition, only announcing the tax rate can induce at least one firm to invest. We suggest that feebate systems in the automotive sector should be designed as self-financing tax/subsidy mechanisms.

Keywords: hold-up problems, environmental regulation, taxes and subsidies, self-financing mechanisms, emission control

JEL Classification: D43, D62, L50, Q28

Suggested Citation

Breitscheidel, Joerg and Gersbach, Hans, Self-Financing Environmental Mechanisms (August 2005). CESifo Working Paper Series No. 1528. Available at SSRN: https://ssrn.com/abstract=812325

Joerg Breitscheidel

Center for European Economic Research (ZEW) ( email )

P.O. Box 10 34 43
L 7,1 D-68161 Mannheim
Germany

Hans Gersbach (Contact Author)

ETH Zurich - CER-ETH -Center of Economic Reseaarch ( email )

Zürichbergstrasse 18
Zurich, 8092
Switzerland
+41 44 632 82 80 (Phone)
+41 44 632 18 30 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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