Essays in environmental policy

This dissertation deals with the choice and effectiveness of environmental policy instruments. The first chapter provides the motivation for the thesis and describes how this thesis is different from any earlier works in this area. The second chapter is a theoretical examination of the choice between quantity-based and price-based instruments. The third chapter is an empirical examination of the effectiveness of the informational strategy towards pollution control.;The second chapter uses a model of bilateral trade between countries to study the choice of environmental policy. The use of the bilateral trade model leads to the explicit inclusion of consumer welfare, a factor that had been ignored in the previous literature. The results show that the equilibrium choice of instruments can be either quantity-based or price-based depending on the size of the country and the nature and timing of the interaction between the governments and firms.;The third chapter looks at the effectiveness of public provision of pollution information as a tool for controlling pollution. This is achieved by examining the effect of release of information about the pollution levels of firms on the market value of firms. We conduct a value event study using the US Environmental Protection Agency's Toxic Release Inventory Program as the basis for analysis. The econometric technique used is the Seemingly Unrelated Regressions (SUR) approach with a dummy variable for the event date to conduct this value event study. The advantage of using the SUR approach as opposed to methods used in previous studies is that it explicitly incorporates both the contemporaneous correlation of returns and the inter-temporal correlation of the estimated abnormal returns when testing the null hypothesis that the event has no impact. We conclude that there are significant negative abnormal returns on the day of the release of the pollution information. Changes in stack air pollution and underground injections are significant causal factors explaining changes in abnormal returns. The market reacts unfavorably towards firms with higher debt-equity ratios and punishes the firms in the industries that produce transportation equipment and electrical equipment more severely.