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To Commit or Not to Commit: Environmental Policy In Imperfectly Competitive Markets

Author

Listed:
  • Emmanuel Petrakis

    (Department of Economics, University of Crete, Greece)

  • Anastasios Xepapadeas

    (Department of Economics, University of Crete, Greece)

Abstract

This paper investigates the effect of the government’s ability to commit, or not, to a specific level of environmental policy instrument, or environmental innovation and welfare in imperfectly competitive markets. We that under monopoly if the government is unable to commit, and follows thus a time consistent policy, then in general emission taxes are lower, while environmental innovation, profits and welfare are higher relative to the precommitment case. The monopoly results extend to the small numbers oligopoly, but they are reserved for the last numbers oligopoly case. Thus of the sufficiently large numbers of firms, emission taxes can be lower and innovation efforts and welfare can be higher under government commitment. The two policy regimes converge, regarding emission taxes, abetment effort and welfare, when the numbers of firms tends to infinity. Our findings indicate that, contrary to most of the results obtained previously, welfare gains can be achieve by either policy regime- precommitment or time consistent-depending on the numbers of firms in the industry.

Suggested Citation

  • Emmanuel Petrakis & Anastasios Xepapadeas, "undated". "To Commit or Not to Commit: Environmental Policy In Imperfectly Competitive Markets," Working Papers 0110, University of Crete, Department of Economics.
    • Handle: RePEc:crt:wpaper:0110
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    Cited by:

    1. STUART McDONALD & JOANNA POYAGO-THEOTOKY, 2017. "Green Technology and Optimal Emissions Taxation," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 19(2), pages 362-376, April.
    2. Soo Keong Yong & Stuart McDonald, 2018. "Emissions tax and second-mover advantage in clean technology R&D," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 20(1), pages 89-108, January.
    3. Petrakis, Emmanuel & Xepapadeas, Anastasios, 2003. "Location decisions of a polluting firm and the time consistency of environmental policy," Resource and Energy Economics, Elsevier, vol. 25(2), pages 197-214, May.
    4. Lambertini, Luca & Poyago-Theotoky, Joanna & Tampieri, Alessandro, 2017. "Cournot competition and “green” innovation: An inverted-U relationship," Energy Economics, Elsevier, vol. 68(C), pages 116-123.
    5. Ana Espínola-Arredondo & Felix Munoz-Garcia & Boying Liu, 2019. "Strategic Emission Fees: Using Green Technology to Deter Entry," Journal of Industry, Competition and Trade, Springer, vol. 19(2), pages 313-349, June.
    6. Jiaqi Chen & Sang‐Ho Lee & Timur K. Muminov, 2022. "R&D spillovers, output subsidies, and privatization in a mixed duopoly: Flexible versus irreversible R&D investments," Bulletin of Economic Research, Wiley Blackwell, vol. 74(3), pages 879-899, July.
    7. Strandholm John C. & Espínola-Arredondo Ana, 2020. "Investment in Green Technology and Entry Deterrence," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 20(2), pages 1-18, April.
    8. García, Arturo & Leal, Mariel & Lee, Sang-Ho, 2018. "Time-inconsistent environmental policies with a consumer-friendly firm: Tradable permits versus emission tax," International Review of Economics & Finance, Elsevier, vol. 58(C), pages 523-537.
    9. Poyago-Theotoky Joanna & Yong Soo Keong, 2019. "Managerial Delegation Contracts, “Green” R&D and Emissions Taxation," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 19(2), pages 1-10, June.
    10. Maria J. Gil-Molto & Bouwe Dijkstra, 2011. "Strictness of Environmental Policy and Investment in Abatement," Discussion Papers in Economics 11/35, Division of Economics, School of Business, University of Leicester.
    11. Fischer, Carolyn, 2003. "Output-Based Allocation of Environmental Policy Revenues and Imperfect Competition," RFF Working Paper Series dp-02-60, Resources for the Future.
    12. Yasunori Ouchida & Daisaku Goto, 2022. "Strategic non‐use of the government's precommitment ability for emissions taxation: Environmental R&D formation in a Cournot duopoly," Australian Economic Papers, Wiley Blackwell, vol. 61(1), pages 181-206, March.
    13. Marie-Laure Cabon-Dhersin & Natacha Raffin, 2023. "Cooperation in Green R&D and Environmental Policies: Taxes or Standards," Working Papers hal-03610541, HAL.
    14. Fischer, Carolyn, 2011. "Market power and output-based refunding of environmental policy revenues," Resource and Energy Economics, Elsevier, vol. 33(1), pages 212-230, January.
    15. Moner-Colonques, R. & Rubio, S., 2015. "The timing of environmental policy in a duopolistic market," Economia Agraria y Recursos Naturales, Spanish Association of Agricultural Economists, vol. 15(01).
    16. Lambertini, Luca & Pignataro, Giuseppe & Tampieri, Alessandro, 2020. "The effects of environmental quality misperception on investments and regulation," International Journal of Production Economics, Elsevier, vol. 225(C).
    17. Alessio D’Amato & Roberta Sestini, 2023. "Buying or performing abatement: environmental policy and welfare when commitment is (not) credible," SEEDS Working Papers 0423, SEEDS, Sustainability Environmental Economics and Dynamics Studies, revised Nov 2023.

    More about this item

    Keywords

    Emision Tax; Apatement effort; Time Consistent Policies; Precommitment; Monopoly; Oligopoly;
    All these keywords.

    JEL classification:

    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy

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