Long-Run Welfare Effect of Energy Conservation Regulation

Matsumura, Toshihiro and Yamagishi, Atsushi (2016): Long-Run Welfare Effect of Energy Conservation Regulation.

Abstract

We investigate the long-run effect of energy conservation regulation, which forces firms to raise energy-saving investment above the cost-minimising level (i.e. the business-as-usual level). If Pigovian tax is imposed, additional regulation always harms social welfare under perfect competition. However, under imperfect competition, additional regulation can improve welfare even if Pigovian tax is imposed. Thus, under imperfect competition, there is a rationale for additional energy conservation regulation even in the presence of Pigovian tax. Our result under imperfect competition holds regardless of whether strategies are strategic substitutes or complements in contrast to direct entry regulation.

• Item Type: MPRA Paper
• Language: English
• Keywords: energy-saving, environmental tax, free entry market, consumer-benefiting regulation
• Subjects: D - Microeconomics > D6 - Welfare Economics > D61 - Allocative Efficiency ; Cost-Benefit Analysis; H - Public Economics > H5 - National Government Expenditures and Related Policies > H54 - Infrastructures ; Other Public Investment and Capital Stock; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L13 - Oligopoly and Other Imperfect Markets

References

Cato, S., 2010. Emission taxes and optimal refunding schemes with endogenous market structure, Environmental and Resource Economics, 46(3), 275--280.

Cato, S., Matsumura, T. 2013. Merger and entry-license tax. Economics Letters 119(1), 11-13.

Etro, F., 2004. Innovation by leaders. The Economic Journal 114(4), 281--303.

Etro, F., 2007. Competition, innovation, and antitrust: a theory of market leaders and its policy implications, Springer-Verlag, Berlin.

Katsoulacos Y., Xepapadeas, A. 1995. Environmental policy under oligopoly with endogenous market structure. Scandinavian Journal of Economics 97(3), 411--420.

Lahiri, S., Ono, Y. 1988. Helping minor firms reduces welfare. The Economic Journal 98, 1199--1202.

Lahiri, S., Ono, Y. 1995. The role of free entry in an oligopolistic Heckscher-Ohlin model. International Economic Review 36(3), 609--624.

Lahiri, S., Ono, Y. 1998. Foreign direct investment, local content requirement, and profit taxation. Economic Journal 108, 444--457.

Lahiri, S., Ono, Y. 2007. Relative emission standard versus tax under oligopoly: the role of free entry. Journal of Economics 91(2),107--128.

Levin, D. 1985. Taxation within Cournot oligopoly. Journal of Public Economics 27, 281--290.

Lee, S. H, 1999. Optimal taxation for polluting oligopolists with endogenous market structure. Journal of Regulatory Economics 15(3), 293-308.

Mankiw, N. G., Whinston, M. D. 1986. Free entry and social inefficiency. RAND Journal of Economics 17(1), 48--58.

Ministry of the Environment, Japan 2016. Review for the introduction of environmental tax, https://www.env.go.jp/policy/tax/misc_jokyo/attach/intro_situation.pdf

Mizutani, F., Suzuki, Y., Sakai, H. 2011. Estimation of social costs of transport in Japan. Urban Studies 48(16), 3537--3559.

Requate, T. 1993. Pollution control in a Cournot duopoly via taxes or permits. Journal of Economics 58, 255--291.

Requate, T. 1997. Green taxes in oligopoly if the number of firms is endogenous. FinanzArchiv 54(2), 261--280

Sen, A. K., Tiwari, G., Upadhyay, V. 2010. Estimating marginal external costs of transport in Delhi. Transport Policy 17(1), 27--37.

Suzumura, K., Kiyono, K. 1987. Entry barriers and economic welfare. Review of Economic Studies 54(1), 157--167.