Abstract
We study the average and aggregate treatment effects of a carbon policy when only a subset of plants in the economy are regulated and when firms compete imper- fectly. We develop a generalized method of moments (GMM) estimator that recovers reduced-form parameters consistent with a model of differentiated product markets with multi-plant firms, and use these estimates to evaluate counterfactuals. In Monte Carlo experiments, our estimator performs well in finite samples, while conventional difference-in-difference estimators are prone to misrepresent the level, and even the sign of the true effects. We use our method to quantify the effect of the EU Emis- sions Trading System CO2 emissions and revenues of French firms. We find that the regulation reduced emissions at regulated plants and increased revenues of regulated firms relative to an unregulated counterfactual, consistent with an endogenous tech- nological response. We also find evidence of spillover effects of the regulation across plants within regulated firms and across firms within regulated sectors.
The seminar will be held in room 1249 (12th floor) at Eilert Sundts Hus. The address is Moltke Moes vei 31.