Timing of Environmental Regulation and the Adoption of Low-Pollution Technologies: An Experiment

We experimentally investigate how the timing of, and commitment to, an environmental regulation affects efficient technology adoption under emission taxes and tradable permits. An environmental regulator can either commit ex-ante to a specific policy level or ex-post to a rule on how to adjust the policy level after firms have decided whether or not to adopt an advanced low-emission technology. In a 2 × 2 design, we examine the performance of the four environmental policies (ex-ante vs. ex-post; tax vs. permits), all of which should theoretically lead to the social optimum. Indeed, we find that, in all scenarios, firms’ adoption of advanced technology is close to the social optimum. Regarding static efficiency, the tax policy slightly outperforms the permit policy. However, the overall efficiency is very high in all treatments, suggesting that ex-post regulations do not necessarily hinder the adoption of low-polluting technologies.