Baldursson, Fridrik M. Fehr, Nils-Henrik M. von der
Year of Publication:
Memorandum, Department of Economics, University of Oslo 2004,29
We consider an intertemporal policy game between changing governments that differ in their attitudes towards a particular feature of market outcomes, exemplified with environmental pollution. When in power, a government will choose policy instruments and set strictness of regulation with a view to influencing the policy of future, possibly different, governments. We demonstrate that a ‘brown’ government favours emission quotas over effluent taxes, as quotas establish property rights that are costly to reverse. Conversely, a ‘green’ government prefers to regulate by taxes, in order to limit the incentives of future ‘brown’ governments to ease regulations. Strategic behaviour tends to exaggerate policy differences (making ‘green’ governments ‘greener’ and ‘brown’ governments ‘browner’) compared to when such strategic considerations were not an issue.
regulation political economy effluent taxes tradable quotas property rights commitment environmental management