Social norms and emission tax multiple equilibria in adopting pollution abatement device

Abstract

The effect of social norm is addressed in an adoption game, where an emission tax is used to motivate oligopolistic firms to adopt a pollution abatement device. We ask if the intrinsic motivation from social norm alone can motivate firms to participate in adoption. The multiple equilibria in the adoption game indicates two possibilities: this intrinsic motivation may or may not enhance adoption. The existing literature on equilibrium selection further suggests that the most likely outcome is that it cannot enhance adoption. Next, by keeping the assumption of symmetry, we show that if cooperation is an option for firms, then the presence of two coordination effects (social norm on adoption and cooperation benefits on output) will result in the existence of asymmetric adoptions.

Acknowledgements

Special thanks to an anonymous referee, Raouf Boucekkine and participants in the talk with the Environmental Economic group in CORE, for precious suggestions. This paper is completed during the first author's visit at the IRES of the Universite Catholique de Louvain, whose warm hospitality is most appreciated.

The author is grateful to an anonymous referee for bringing up this interesting point.

Notes

¹See Alm et al., 1993; Lai et al., 2003; Rege, 2004.

²Carlsson and van Damme (1993) introduced private information, and Kandori et al. (1993) introduced random mutations in the evolutionary process.

³For example, the OSPAR Convention, the moratorium on whale hunting in 1986, and the Kyoto Protocol 2005.

⁴See the following site for the details of ratifying countries: http://unfccc.int/files/essential_background/kyoto_protocol/application/pdf/kpstats.pdf

⁵For adoptions among heterogenous firms, see Verhoef and Nijkamp (2003).

⁶Partially coordinated means that not all countries or organizations agree or comply with pollution control. For an example of partial coordination, see Requate, 2005).

⁷Source: The OSPAR Convention, Greenpeace and Iceland: Past, Present and Future, Declaration of the joint Ministerial Meeting of the Helsinki and OSPAR Commissions, Bremen, 2003.