Munich Personal RePEc Archive

Long-Run Welfare Effect of Energy Conservation Regulation

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

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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.

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