The Impact of Foreign Ownership on the Choice between Emission Taxes and Emission Standards*

Abstract

This research examines how foreign ownership affects the choice of two environmental policies. We find that a monopoly with foreign ownership produces more (less) and abates less (more) under emission standards than under emission taxes. As foreign ownership increases, with a small foreign ownership level the government is more likely to adopt the emission tax; and with a large foreign ownership level, if the abatement efficiency is high, then the government is also more likely to adopt the emission tax. We also examine the duopoly case in which a domestic firm with foreign ownership competes with another pure domestic firm.