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Why do firms oppose entry-deterring policies? Environmental regulation and entry deterrence

Published online by Cambridge University Press:  23 April 2014

Ana Espínola-Arredondo  and
Félix Muñoz-García
Ana Espínola-Arredondo
Affiliation:
School of Economic Sciences, Washington State University, 111C Hulbert Hall, Pullman, WA 99164, USA. E-mail: [email protected]
Félix Muñoz-García
Affiliation:
School of Economic Sciences, Washington State University, USA. E-mail: [email protected]
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Abstract

This paper investigates the design of environmental regulation under different regimes: flexible and inflexible policies. We analyze under which settings strict emission fees can be used as an entry-deterring tool, and become socially optimal. Furthermore, we demonstrate that the incentives of the social planner and the incumbent firm are aligned regarding policy regimes ifentry can be easily deterred by setting a stringent regulation. Their incentives, however, can bemisaligned when entry becomes more costly to deter, leading the incumbent to actually preferenvironmental policies that attract entry.

Type
Research Article
Information
Environment and Development Economics , Volume 20 , Issue 2 , April 2015 , pp. 141 - 160
Copyright
Copyright © Cambridge University Press 2014 

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