Strategic Choice of Market Instrument ()
ABSTRACT
This paper proposes a model
where both regulator and industry behave strategically to endogenously choose
the optimal market instrument. The regulator payoff function includes political
gains from investment in abatement and improvement in the provision of the
environmental good in addition to the efficient choice of the instrument level.
Whereas the industry’s objective is to minimize abatement costs. Under
plausible conditions, the model suggests that quantity instrument is favorable
to the regulator. Also, industry with high cost of abatement has a better
incentive to invest in clean technology. Regulator gains from increasing the
provision of environmental good and from industry investing in abatement.
Share and Cite:
Atallah, S. (2017) Strategic Choice of Market Instrument.
Theoretical Economics Letters,
7, 1029-1042. doi:
10.4236/tel.2017.74070.
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