Social Norms and Emission Tax: Multiple Equilibria in Adopting Pollution Abatement Device

Abstract

The effect of social norm is addressed in an adoption game, where an emission tax is used to motivate oligopolistic firms to adopt a pollution abatement device. We ask if the intrinsic motivation from social norm alone can motivate firms to participate in adoption. The multiple equilibria in the adoption game indicates two possibilities: this intrinsic motivation may or may not enhance adoption. The existing literature on equilibrium selection further suggests that the most likely outcome is that it cannot enhance adoption. Next, by keeping the assumption of symmetry, we show that if cooperation is an option for firms, then the presence of two coordination effects (social norm on adoption and cooperation benefits on output) will result in the existence of asymmetric adoptions.