Regulating Environmental Externalities through Public Firms: A Differential Game
AbstractWe investigate the possibility of using public firms to regulate polluting emissions in a Cournot oligopoly where production takes place at constant returns to scale and entails a negative environmental externality. We model the problem as a differential game and investigate (i) the Cournot-Nash game among profit-seeking firms; (ii) the Markov Perfect Nash equilibrium under social planning, where the industry output is entirely controlled by a benevolent planner aiming at the maximisation of social welfare; and (iii) the Markov Perfect Nash equilibrium in a mixed setup where at least one firm is public, while the others remain profit-seeking agents. Our analysis identifies the conditions whereby having a mixed market as a regulatory instrument suffices to drive the industry to the same output, externality and social welfare as under planning, both along the optimal path and in steady state.
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Bibliographic InfoPaper provided by Dipartimento Scienze Economiche, Universita' di Bologna in its series Working Papers with number wp738.
Date of creation: Mar 2011
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Find related papers by JEL classification:
- C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- D62 - Microeconomics - - Welfare Economics - - - Externalities
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L32 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Enterprises; Public-Private Enterprises
- Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-04-02 (All new papers)
- NEP-ENE-2011-04-02 (Energy Economics)
- NEP-ENV-2011-04-02 (Environmental Economics)
- NEP-GTH-2011-04-02 (Game Theory)
- NEP-REG-2011-04-02 (Regulation)
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Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- Using public firms to regulate the environment
by Economic Logician in Economic Logic on 2011-04-29 14:46:00
- M. Fadaee, 2011. "A Dynamic Approach to the Environmental Effects of Trade Liberalization," Working Papers wp746, Dipartimento Scienze Economiche, Universita' di Bologna.
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