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Theory suggests that economic instruments, such as pollution taxes or tradable permits, can provide more efficient technology adoption incentives than conventional regulatory standards. We explore this issue for an important industry undergoing dramatic decreases in allowed pollution – the U.S. petroleum industry's phasedown of lead in gasoline. Using a duration model applied to a panel of refineries from 1971–1995, we find that the pattern of technology adoption is consistent with an economic response to market incentives, plant characteristics, and alternative policies. Importantly, evidence suggests that the tradable permit system used during the phasedown provided incentives for more efficient technology adoption decisions.
Kerr et al. (2003) studied this question.