We study the effect of a shock on firms’ costs in a general setting by considering both perfect and imperfect competition and a general cost function. We show that, counterintuitively, firms’ profits may increase with cost increases. We generalize Seade’s (1985) results by considering the...

Under imperfect competition, the effect of a cap-and-trade system on indus- try profits depends on the type of abatement technology that is used by firms: industries that use process-integrated technologies are more affected than those using end-of-pipe abatement technologies. The interaction...

This paper analyzes the long-term investment decisions of firms that are regulated by an emissions tax and that perceive a degree of market power in their respective output markets. Firms invest in abatement equipment that is fixed over the medium term (e.g., buying a new generator). This paper...

The present paper addresses two policy objectives that the environmental regulator aims to accomplish: to implement a market for permits and make regulation acceptable for businesses. Profit-neutral permit allocations are defined as the number of permits that the regulator should give for free...

Faced with the widespread use of dismantling sites in Asia, whose processes present alarming health and environmental issues, the European Commission has raised the question of implementing a financial mechanism to encourage shipowners to use higher standards for ship recycling. This mechanism...

Achieving an ambitious goal frequently requires succeeding in a sequence of intermediary tasks, some being critical for the final outcome, and others not. Individuals are not always able to provide a level of effort sufficient to guarantee success in all the intermediary tasks. The ability to...

For carbon-intensive, internationally-traded industrial goods, a unilateral increase in the domestic CO2 price may result in the reduction of the domestic production but an increase of imports. In such sectors as electricity, cement or steel, the trade flows result more from short-term regional...

The transition of a sector from a pollutant state to a clean one is studied. A green technology, subject to learning-by-doing, progressively replaces an old one. The notion of abatement cost in this dynamic context is fully characterized. The theoretical, dynamic optimization, perspective is...

This paper finds that it is optimal to start a long-term emission-reduction strategy with significant short-term abatement investment, even if the optimal carbon price starts low and grows progressively over time. Moreover, optimal marginal abatement investment costs differ across sectors of the...

We assume that a project requires an initial outlay and may either succeed or fail. The probability of success depends on its type and on the effort of the firm. Only in the case of success do private and external benefits appear. The paper analyzes the optimal design of subsidies under...