Livestock emissions regulation with unknown damages and strategic technology adoption

Livestock emissions have been identified as a contributor to greenhouse gas build-up yet have remained unregulated in the US. A game-theoretic model in the style of Tarui and Polasky (2005) was analysed where the dairy industry strategically chooses to abate air emissions with technology adoption and herd size decisions while a regulator chooses a tax rate on emissions to satisfy the desires of competing interest groups. This model allows the effects of potential air emission regulation on the dairy industry to be evaluated. Results demonstrate that dairy farms react to the increased cost of air regulation by decreasing herd size rather than investing in air emission abatement technology in the short run. This suggests that incentives may need to be put in place to induce adoption in emissions abatement technology at the livestock level in the long run.