Environmental policy contests: command and control versus taxes

This study compares the performance of two types of environmental policy instruments (command and control and taxes on emissions) when (1) the regulator’s policy choice is sensitive to the pressure of two lobbies (environmentalist and industry) and (2) lobbies can strategically set the policy proposal they will lobby for. Due to the extra fiscal burden entailed by taxes, we find that lobbyists have more incentives to moderate their policy proposals under command and control. We show how this triggers a series of differences between these two regulatory tools in terms of expected emissions, lobbyists’ utilities, or aggregate welfare.