Abstracts

Competitive Investment in Clean Technology and Uninformed Green Consumers,    (Job Market Paper)

         Abstract 

In a market where consumers are not fully informed about the actual production technology or environmental performance of firms that engage in strategic competition, I study the effect of environmental consciousness of consumers on the incentive to invest in cleaner technology. Firms compete in prices and may signal their environmental performance to uninformed consumers through prices. I also analyze the effect of environmental regulation on firms in this setting. Relative to full information, the strategic incentive to invest in cleaner technology is generally higher when consumers are ex ante uninformed. Thus, requiring mandatory disclosure of technology or environmental performance may discourage such investment. Despite the fact that consumers are uninformed, competition has a positive effect (relative to monopoly) on the incentive to invest. While the incentive to invest is increasing in the level of regulation as well as consumer consciousness for much of the parameter space, there are situations where this may not hold. For a significant range of parameters, there is complementarity between regulation and consciousness in inducing investment in cleaner technology; however, when regulation and/or consciousness are high enough, increase in regulation may reduce the positive effect of consciousness on the incentive to invest and vice-versa.

Investment in Cleaner Technology and Signaling Distortions in a Market with Green Consumers, (revise and resubmit, Journal of Environmental Economics and Management)

         Abstract 

I analyze the pricing and investment behavior of a firm that signals the environmental attribute of its production technology through its price to uninformed environmentally conscious consumers. I then analyze the effect of change in environmental regulation on the signaling outcome and the firm's ex ante incentive to invest in cleaner technology. When regulation is weak, a firm signals cleaner technology through higher price and in this case, the firm earns lower profit when it has cleaner technology and has no incentive to invest in cleaner technology. The price charged by the clean firm declines sharply beyond a critical level of regulation. When regulation is sufficiently stringent, the firm with cleaner technology charges lower price but earns higher signaling profit, and ex ante the firm has positive incentive to invest in cleaner technology. With weak regulation, the incentive of the firm to directly disclose its environmental performance rather than signal it through price (signaling distortion of profit) is increasing in the level of regulation, but the opposite holds when regulation is sufficiently stringent.

   Environmental Regulation and Industry Dynamics

(The B.E. Journal of Economic Analysis & Policy, 2010, Volume 10, Issue 1, Topics)

         Abstract  

We examine the effect of more stringent environmental regulation on the dynamic structure of a deterministic competitive industry with endogenous entry and exit where firms invest in reduction of their future compliance cost. The level of regulation is exogenously fixed and constant over time. The compliance cost of a firm at each point of time depends on its current output, its accumulated past investment and the level of regulation. We outline sufficient conditions under which industries with more stringent regulation are associated with higher investment in compliance cost reduction and higher shake-out of firms over time; the opposite may be true under certain circumstances. Our analysis indicates that the effect of a change in regulation on market structure may be lagged over time.

  Environmental Regulations and Economic Activity: Influence on Market Structure, (with Daniel Millimet and Santanu Roy) in Annual Review of Resource Economics, 2009 Vol. 1: 99-117.

         Abstract 

We survey recent developments in the theoretical and empirical literature on the economic effects of environmental regulation on various aspects of market structure including entry, exit and size distribution of firms and market concentration.

    Product Differentiation and Relative Performance Evaluation in an Asymmetric Duopoly,            Working paper 2007.

         Abstract

In a model of managerial delegation in a duopoly with asymmetric costs, I show that an increase in the intensity of market competition (product differentiation) increases the absolute weight placed on rival's profit (relative performance) in the managerial compensation scheme for both firms and also increases market concentration. The relatively efficient (larger) firm always places higher weight on rival's performance and obtains higher market share.