Publication: Firms' and States' Responses to Laxer Environmental Standards
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Published
2019-03
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Date
2019-03-14
Author(s)
Cordella, Tito
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Abstract
On June 1, 2017, President Trump announced the United States' withdrawal from the Paris agreement on climate change. Despite this decision, American firms continued investing in low-carbon technologies and some states committed to tougher environmental standards. To understand this apparent paradox, this paper studies how a weakening of environmental standards affects the behavior of profit-maximizing firms. It finds that a relaxation of emission standards (i) may increase firms' incentives to adopt clean technologies, but not to pollute less; (ii) may negatively affect industry profitability if it is perceived as temporary; and, when this is the case, (iii) the unilateral adoption of stricter standards by large states may increase the expected profitability of every firm.
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Citation
“Cordella, Tito; Devarajan, Shantayanan. 2019. Firms' and States' Responses to Laxer Environmental Standards. Policy Research Working Paper;No. 8781. © World Bank. http://hdl.handle.net/10986/31407 License: CC BY 3.0 IGO.”
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