Rent creation and rent seeking in environmental policy

MacKenzie, Ian A.

doi:10.1007/s11127-017-0401-8

Cited by 21 publications

(8 citation statements)

References 50 publications

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“…While the explanations above consider some aspects of Spain's support policies for renewable energies, the core lies in forms of rent-seeking behavior such as monopoly profits for special interest groups [19,20]. This activity restricts market competition and reduces the rent-seeking costs for monopolistic firms.…”

Section: Introductionmentioning

confidence: 99%

The Political Economy of Rent-Seeking: Evidence from Spain’s Support Policies for Renewable Energy

2021

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This paper provides a theoretical framework to explore how the support policies for renewable energies can promote rent-seeking incentives in private firms. We develop a political economy of rent-seeking that considers the link between the regulatory decisions of political agents and the potential scope of socially wasteful pursuits. We argue that systematic public support schemes bring rent-seeking as a perception shared by entrepreneurs that influencing political allocations of resources is an essential and potentially preferable source of private profit than other for-profit economic avenues. As evidence of our claims, the framework is applied to the case of Spain to illustrate the economic effects of support policies on the production and distribution of renewable energy. We find rent-seeking behavior in Spain’s renewable energy industry, and precisely that: (i) political regulations have induced market concentration and rent-seeking in renewable energy firms, (ii) these firms have required increasing regulations and premiums to survive, and (iii) energy consumers are forced to pay rent-seeking through increasingly expensive electricity bills. The analysis reveals some challenges and opportunities to drive efficient market-based policies to strengthen entrepreneurial competition and curb rent-seeking behavior. These insights have relevant proposals for the Spanish energy industry in complying with the EU Green Deal through a sustainable transition and comprehensive growth.

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Section: Introductionmentioning

confidence: 99%

The Political Economy of Rent-Seeking: Evidence from Spain’s Support Policies for Renewable Energy

2021

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“…The policymaker changes his or her choice if the industry spends an exogenous amount, R > 0, on lobbying activities. 11 The industry lobbies if and only if ∆C(e g ) < R. 12 ∆C(e g ) exhibits an inverted-U curve, with ∆C(0) = ∆C(ē) = 0. The trajectory corresponds to the net tax payment as in a Laffer curve but reduced by the amount spent in the contest and that transferred to the citizen.…”

Section: Lemmamentioning

confidence: 99%

“…This difference in international and national levels of emissions goals yields a strategic preemption of the lobbying when ambitious emissions targets are set. McKenzie (2017) shows that the distributional rent-seeking behavior affects the instrument choice under uncertainty regarding the emissions abatement cost. This study, however, supposes that the households are not politically active.…”

Section: Introductionmentioning

confidence: 99%

Ambitious Emissions Goal as a Strategic Preemption

Yamagami

Arawatari

Hori

2021

SBE

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We model a political game where a policymaker pledges a domestic emissions goal in the context of instrument choice between carbon pricing (CP) and a quota approach. We show that, although the policymaker faces an emissions goal proposed from an international environmental agreement, she may pledge a more stringent emissions than the proposed level. We define this stringent goal as an "ambitious emissions goal". We show that the ambitious emissions goal acts as a strategy for the policymaker that preempts the industry's lobby in a subsequent stage. We also suppose that, if CP is introduced, a rent-seeking contest for the CP revenue refund is held. Then, if the contest is socially costly enough, CP is no longer an optimal instrument. Finally, we extend the model of one country to that of two symmetric countries. A Nash equilibrium where both countries pledge the ambitious emissions goals remains.

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“…Lastly, closely related in spirit to our paper is the paper by McKenzie (2017) which has a rent seeking model to study the choice between price and quantity instruments in environmental policies. 6 However, as permits are given to firms, not to individuals, he follows the political economy literature on tradeable permits and largely focuses on rent seeking.…”

Section: Literature Reviewmentioning

confidence: 99%

Rational Drivers and the Choice between Congestion Tolls and Tradeable Permits: A Political Economy Model

2021

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People who anticipate the introduction of a policy can adapt their behavior, perhaps in ways that make the policy ineffective and exacerbate the problem to be addressed. This paper develops a political economy model to study strategic behavior related to the introduction of congestion policies, focusing on tradeable driving permits and congestion tolls. We have the following results. First, anticipatory behavior after the policies are announced but prior to their introduction may make both congestion policies welfare-reducing. Second, drivers will oppose the policies even when they receive all permits for free, or toll revenues are distributed to drivers only. As a consequence, strategic behavior makes it more difficult to get a political majority to support both congestion policies. Third, in an infinite horizon setting, tradable permits are superior to congestion tolls in that they avoid strategic behavior once the system is implemented. In contrast, with congestion tolls the steady-state equilibrium implies continuing strategic behavior. Drivers will always strictly prefer a permit system over congestion tolls as long as they receive a sufficient share of the permits for free.

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Rent creation and rent seeking in environmental policy

Cited by 21 publications

References 50 publications

The Political Economy of Rent-Seeking: Evidence from Spain’s Support Policies for Renewable Energy

The Political Economy of Rent-Seeking: Evidence from Spain’s Support Policies for Renewable Energy

Ambitious Emissions Goal as a Strategic Preemption

Rational Drivers and the Choice between Congestion Tolls and Tradeable Permits: A Political Economy Model

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