| There is a growing body of literature analyzing the performance of various regulatory instruments in attaining both economic and environmental goals. In the literature, instruments are compared on the basis of information, monitoring and enforcement costs, distributional and ethical considerations, and static and dynamic efficiency. Yet, it is hard to obtain concrete and generalizable results about the performance of these regulatory tools under different industry structures.; This thesis compares two regulatory instruments--a performance standard and a tax--in the U.S. paper industry with regard to reducing five day biochemical oxygen demand (BOD{dollar}sb5{dollar}) and adsorbable organic halides (AOX) releases, and their potential for inducing R&D and technological innovations for pollution prevention and control. It examines industry-specific factors affecting the economic and environmental performance of these regulatory tools, using a multiple-stage nonlinear optimization model.; The thesis employs a two stage simultaneous Cournot game model which is appropriate to the study of strategic behavior of two firms emitting multiple pollutants in the face of environmental regulation. The model takes into account (i) the oligopolistic nature of the industry, (ii) firms' cost structures, and production and treatment processes, (iii) spillovers in R&D activities, and (iv) regulatory instruments of a performance standard, and a tax.; The analysis includes several different scenarios considering the following factors: market demand conditions, input price levels, spillover effects in R&D, asymmetries in spillovers and in initial prevention and control techniques, and in firms' potential to benefit from technological improvements. It compares the results of each scenario of each firm vis-a-vis its competitors by examining (i) the type and level of R&D, (ii) the pulp and paper production and profits, (iii) production and treatment technologies, (iv) final discharges of pollutants, and (v) the interaction between the two major water pollutants.; This thesis contributes to the existing literature in regard to the effects of environmental regulation on firm behavior under imperfect competition in R&D and output markets. The results provide a comprehensive analysis of the factors influencing a firm's decisions with regard to resource allocation on pollution prevention and pollution control in the firm's environmental R&D portfolio, and of corresponding innovations. |
