Polluter’s Capital Quality Standards and Subsidy-Tax Programs for Environmental Externalities: A Competitive Equilibrium Analysis
The paper concentrates on the role of the physical features of the fixed assets in determining the extent of discharges. It considers the case where the firms have access to a technology which allows one to regulate the quality of capital instantaneously through a lump-sum maintenance expenditure which applies only when the state variable hits a predetermined minimum quality standard. In a partial equilibrium framework (single firm and a long-run competitive industry) the paper investigates the relationship between the optimal firm’s barrier policy comprising the capital’s minimum quality standard and the use of a subsidy/tax program for decreasing pollution emissions by those who generate externalities.
KeywordsIncumbent Firm Potential Entrant Competitive Industry Benchmark Level Minimum Quality Standard
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