We investigate the long-run effect of energy conservation regulation, which forces firms to raise energy-saving investment above the cost-minimising level (i.e. the business-as-usual level). If Pigovian tax is imposed, additional regulation always harms social welfare under perfect competition. However, under imperfect competition, additional regulation can improve welfare even if Pigovian tax is imposed. Thus, under imperfect competition, there is a rationale for additional energy conservation regulation even in the presence of Pigovian tax. Our result under imperfect competition holds regardless of whether strategies are strategic substitutes or complements in contrast to direct entry regulation. JEL classification: D61, H54, L13Keywords: energy-saving, environmental tax, free entry market, consumer-benefiting regulation * The first author acknowledges the financial support from JSPS KAKENHI Grant Number 15K03347. Needless to say, we are responsible for any remaining errors.† Institute of Social Science, The University of Tokyo, 7-3-1, Bunkyo-ku, Hongo, Tokyo, 113-0033, Japan. Phone:+81-3-5841-4932, Fax:+81-3-5841-4905, Email:matsumur@iss.u-tokyo.ac.jp ‡ Corresponding author : Graduate School of Economics, The University of Tokyo, 7-3-1, Bunkyo-ku, Hongo, Tokyo, 113-0033, Japan. E-mail:atsushiyamagishi.econ@gmail.com 1 HighlightsWe investigate the long-run effect of energy conservation regulation.We consider the cases in which Pigovian tax is imposed.Additional energy conservation regulation is always harmful under perfect competition.It may improve both social and consumer welfare under imperfect competition.2

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To explore the propagation of undesirable policies in a form of populist extremism, we construct a social learning model featuring agency problems. Politicians in different countries sequentially implement a policy. Voters learn the incumbent politician's type and the desirable policy by observing foreign policies on top of the domestic policy. We show that populist extremism is contagious across countries through the dynamic interaction between the changing public opinion and implemented policies. This structure yields interesting long-run dynamics. First, a single moderate policy could be always enough to stop the domino effect. Second, the persistence of the domino effect depends on the correlation of the desirable policy across countries. In particular, while extremism eventually ends under the perfect correlation, it may become impossible to escape from extremism under the imperfect correlation. These results reveal a new negative aspect of decentralized policymaking.

Under capital tax competition, surprisingly, Ogawa and Wildasin (2009) find that uncoordinated policymaking leads to a first-best outcome even in the presence of transboundary pollution. However, I show that if the level of environmental regulation is endogenized, the regulation level becomes too loose compared with the optimum ("race to the bottom"). Thus, despite the efficiency result of Ogawa and Wildasin (2009), efforts to achieve international environmental policy coordination are needed. I then examine the dependence of this result on the level of decisive voter's capital endowment. The regulation is inefficiently loose in many cases, but it can be too strict if the decisive voter's capital endowment is above the average. Thus, the possibility of "race to the top" cannot be eliminated. The inefficiency result does not generally depend on the timing of policymaking, although the efficiency may be restored in the limit case where the decisive voter has no capital at all.Résumé. Pollution transfrontalière, compétition fiscale et efficacité des politiques environnementales non coordonnées. En matière de compétition fiscale sur le capital, Ogawa et Wildasin (2009) ont découvert de manière surprenante que l'élaboration de politiques non coordonnées génère de meilleurs résultats, même en présence de pollution transfrontalière. Néanmoins, l'auteur montre que si le niveau de réglementation environnementale est endogénéisé, ce dernier devient trop laxiste (« nivellement par le bas » ) et s'écarte de l'idéal. Par conséquent, malgré les résultats d'efficacité d'Ogawa et Wildasin (2009), des efforts sont nécessaires pour parvenir à des politiques environnementales coordonnées sur le plan international. L'auteur examine ensuite la dépendance de ce résultat relativement au niveau de dotation en capital de l'électeur décisif. Dans de nombreux cas, la réglementation est inefficace et laxiste mais peut s'avérer trop stricte si la dotation en capital de l'électeur décisif est au-dessus de la moyenne. Ainsi, la possibilité d'un « nivellement par le haut » ne peut être écartée. Les résultats d'inefficacité ne dépendent généralement pas du calendrier d'élaboration des politiques, bien que l'efficacité peut être restaurée dans le cas restreint où l'électeur décisif ne possède aucun capital.