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

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Author Info

  • 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.

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Bibliographic Info

Paper provided by University of Crete, Department of Economics in its series Working Papers with number 0110.

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Length: 69 pages
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Handle: RePEc:crt:wpaper:0110

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Related research

Keywords: Emision Tax; Apatement effort; Time Consistent Policies; Precommitment; Monopoly; Oligopoly;

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Cited by:
  1. Fischer, Carolyn, 2003. "Output-Based Allocation of Environmental Policy Revenues and Imperfect Competition," Discussion Papers dp-02-60, Resources For the Future.
  2. 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.
  3. L. Lambertini & J. Poyago-Theotoky & A. Tampieri, 2014. "Cournot Competition and “Green” Innovation: An Inverted-U Relationship," Working Papers wp951, Dipartimento Scienze Economiche, Universita' di Bologna.
  4. Stuart McDonald & Joanna Poyago-Theotoky, 2014. "Green Technology and Optimal Emissions Taxation," Working Paper Series 07_14, The Rimini Centre for Economic Analysis.
  5. Fischer, Carolyn, 2003. "Market Power and Output-Based Refunding of Environmental Policy Revenues," Discussion Papers dp-03-27, Resources For the Future.

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