Abstract
The well-known Averch-Johnson thesis indicated that the main result of rate-of-return regulation is overcapitalization. A regulated monopoly can adhere to environmental policy by undertaking investment in pollution abatement equipment, along with investment in output production. In this context, over- or undercapitalization effects have a direct influence on the monopoly’s emissions. This paper analyzes two related issues. The first is the direction and distribution of the effects of introducing rate-of-return regulation under a given environmental policy, in the form of emission charges, on investment in productive and pollution abatement equipment. The second is whether the regulated firm responds in the same manner as the unregulated firm, to the introduction of the above environmental policy.
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Xepapadeas, A. (1995). Rate-of-Return Regulation, Emission Charges and Behavior of Monopoly. In: Carraro, C., Filar, J.A. (eds) Control and Game-Theoretic Models of the Environment. Annals of the International Society of Dynamic Games, vol 2. Birkhäuser, Boston, MA. https://doi.org/10.1007/978-1-4612-0841-9_9
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DOI: https://doi.org/10.1007/978-1-4612-0841-9_9
Publisher Name: Birkhäuser, Boston, MA
Print ISBN: 978-1-4612-6917-5
Online ISBN: 978-1-4612-0841-9
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