No |
SDES-2015-23 |
Title |
Some implications of environmental regulation on social welfare under learning-by-doing of eco-products |
Author |
Koji Kotani and Makoto Kakinaka |
Abstract |
This paper examines the signicance of environmental regulation in an economy
where an eco-product supplied by a single producer is dierentiated from a conventional
product generating negative externalities. We develop two types of the model: one is a
static model without learning eect of eco-product planning, and the other is a dynamic
model with learning eect. We show that the regulation should be adopted when the
marginal cost of the eco-product production is high enough in a static setting. In a
dynamic model, however, whether the regulation improves social welfare is dependent
not only on current marginal costs of the eco-product but also on the degree of dynamic
learning eect. Particularly, the regulation could improve social welfare when learning
eect is either small or large enough, while it could deteriorate social welfare in an
intermediate case. Although intuitions tell us that the value of the regulation appears
to be monotonically increasing in learning eect, our results suggest that the value
possesses a nonmonotone U-shaped feature with respect to learning eect. The optimal
decision of the regulation in a dynamic setting could be converse to that of a static
setting, providing important policy implications of learning potentials. |
Revised version published in |
Environmental Economics and Policy Studies |