Using effluent charges in promoting investment in water pollution control technology: a model of coordination failure among firms

Selvaretnam, G. and Thampanishvong, K. (2010) Using effluent charges in promoting investment in water pollution control technology: a model of coordination failure among firms. Environmental Economics, 1(2), pp. 21-28.

Abstract

Untreated wastewater, being directly discharged into rivers, is a very harmful environmental hazard that needs to be tackled urgently in many countries. In order to safeguard the river ecosystem and reduce water pollution, it is important to have an effluent charge policy that promotes the investment of wastewater treatment technology by domestic firms. This paper considers the strategic interaction between the government and the domestic firms regarding the investment in the wastewater treatment technology and the design of optimal effluent charge policy that should be implemented. In this model, the higher is the proportion of non-investing firms, the higher would be the probability of having to incur an effluent charge and the higher would be that charge. On the one hand, the government needs to impose a sufficiently strict policy to ensure that firms have strong incentive to invest. On the other hand, it cannot be too strict that it drives out firms which cannot afford to invest in such expensive technology. The paper analyses the factors that affect the probability of investment in this technology. It also explains the difficulty of imposing a strict environment policy in countries that have too many small firms which cannot afford to invest, unless subsidised.

• Item Type: Articles
• Status: Published
• Refereed: Yes
• Glasgow Author(s) Enlighten ID: Selvaretnam, Dr Geethanjali
• Authors: Selvaretnam, G., and Thampanishvong, K.
• College/School: College of Social Sciences > Adam Smith Business School > Economics
• Journal Name: Environmental Economics
• Publisher: Dilovi Perspektyvy
• ISSN: 1998-6041
• ISSN (Online): 1998-605X