Environmental regulation and firm behavior
Galloway, Emily E.
MetadataShow full item record
In three essays, the relationship between environmental regulation and firm behavior is explored. First, firms are found to influence the price in a regulatory market for emissions permits by exercising market power within their own price market. As the degree of market power in three high emitting industries increased, the price of NOx permits in Southern California’s RECLAIM permit increased as well. Second, the process of firm learning is explored. Power plants facing more stringent environmental regulation are found to learn from environmental regulation and experience efficiency gains. These gains are found to spillover to other power plants facing less stringent regulation through knowledge networks. Third, the decision of electricity firms to participate in reserve markets is modeled and simulated in order to measure the effect of increased wind power in the market on this decision. As the amount of wind power in the market increased, the expected capacity available in the market decreased, inviting the possibility of electricity shortages. However, the reduced variability in market outcomes when wind penetration increases suggests that policy makers may be better able to manipulate existing market mechanisms to induce investment in new capacity.