Special Interest Climate Policy

Résumé

Can firms capitalize on social objectives? We scrutinize a mechanism for firms’ private interests in climate externalities: In a dynamic common agency model, the private interest in internalizing externalities arises endogenously from interaction between income growth, social costs, and rents in dirty and clean productions. The mechanism shows how subsidies to socially harmful actions turn to externality prices and special interests can implement energy transition faster than socially optimal.