We study (energy) markets with dirty incumbents and costly entry by clean producers. For intermediate entry costs, the market outcome exhibits inefficient production and inefficient entry. A policy mix of three popular regulatory instruments-taxation...
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ZBW - Leibniz-Informationszentrum Wirtschaft, Standort Kiel
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We study (energy) markets with dirty incumbents and costly entry by clean producers. For intermediate entry costs, the market outcome exhibits inefficient production and inefficient entry. A policy mix of three popular regulatory instruments-taxation on polluters, feed-in tariffs for clean entrants, and taxation of consumption-cannot correct these two market failures. Feed-in tariffs and consumption taxes are ineffective instruments for implementing the first best. The second best requires feed-in tariffs or consumption taxes. For a given level of production, the instruments are ineffective in influencing the overall budget, but may be effective for other budgetary concepts.
