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Environmental innovation under Cournot competition

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Author Info
Maria Eugenia, SANIN () (UNIVERSITE CATHOLIQUE DE LOUVAIN, Center for Operations Research and Econometrics (CORE))
Skerdilajda, ZANAJ () (UNIVERSITE CATHOLIQUE DE LOUVAIN, Center for Operations Research and Econometrics (CORE) and Universita di Siena)

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Abstract

In this paper, we address the incentives to invest in environmental innovation of enterprises that exercise market power in the output market and also buy and sell pollution permits. Differently from the existing literature, using a market approach we explicitly model the interaction between the output market, where firms play ˆ la Cournot, and the permits market. We find that, in the new equilibrium firms behave symmetrically, that is, they either both innovate to protect their market share in the output market or they both choose not to innovate. Whether the innovation equilibrium arises or not depends on the output demand and on the productivity enhancement and not on the distribution of permits among firms. Finally, we show that, under this market configuration, collusion can be welfare enhancing.

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Publisher Info
Paper provided by Université catholique de Louvain, Département des Sciences Economiques in its series Discussion Papers (ECON - Département des Sciences Economiques) with number 2007031.

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Length: 30
Date of creation: 17 Sep 2007
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Handle: RePEc:ctl:louvec:2007031

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Related research
Keywords: environmental innovation; tradable permits; interaction ˆ la Cournot;

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Find related papers by JEL classification:
D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Juan Pablo Montero, 2002. "Market Structure and Environmental Innovation," Documentos de Trabajo 215, Instituto de Economía. Pontificia Universidad Católica de Chile.. [Downloadable!]
    Other versions:
  2. Hahn, Robert W., 1982. "Market Power and Transferable Property Rights," Working Papers 402, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
    Other versions:
  3. BRECHET, Thierry & JOUVET, Pierre-AndrŽ, 2006. "Environmental innovation and the cost of pollution abatement," CORE Discussion Papers 2006040, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE). [Downloadable!]
  4. SANIN, Maria Eugenia, 2006. "Market design in wholesale electricity markets," CORE Discussion Papers 2006100, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE). [Downloadable!]
  5. Montero, Juan-Pablo, 2002. "Permits, Standards, and Technology Innovation," Journal of Environmental Economics and Management, Elsevier, vol. 44(1), pages 23-44, July. [Downloadable!] (restricted)
  6. Requate, Till, 1998. "Incentives to innovate under emission taxes and tradeable permits," European Journal of Political Economy, Elsevier, vol. 14(1), pages 139-165, February. [Downloadable!] (restricted)
  7. GABSZEWICZ, Jean J. & ZANAJ, Skerdilajda, 2006. "Upstream market foreclosure," CORE Discussion Papers 2006043, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE). [Downloadable!]
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  8. Bréchet, Thierry & Jouvet, Pierre-André, 2008. "Environmental innovation and the cost of pollution abatement revisited," Ecological Economics, Elsevier, vol. 65(2), pages 262-265, April. [Downloadable!] (restricted)
  9. GABSZEWICZÊ, JeanÊJ. & GARELLA, PaoloÊG., 1995. ""Buy it or make it Yourself ?" A Paradox," CORE Discussion Papers 1995014, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  10. Parry, Ian W H, 1998. "Pollution Regulation and the Efficiency Gains from Technological Innovation," Journal of Regulatory Economics, Springer, vol. 14(3), pages 229-54, November. [Downloadable!] (restricted)
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  11. Milliman, Scott R. & Prince, Raymond, 1989. "Firm incentives to promote technological change in pollution control," Journal of Environmental Economics and Management, Elsevier, vol. 17(3), pages 247-265, November. [Downloadable!] (restricted)
  12. Downing, Paul B. & White, Lawrence J., 1986. "Innovation in pollution control," Journal of Environmental Economics and Management, Elsevier, vol. 13(1), pages 18-29, March. [Downloadable!] (restricted)
  13. GABSZEWICZ, Jean J. & ZANAJ, Skerdilajda, 2006. "Competition in successive markets : entry and mergers," CORE Discussion Papers 2006097, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE). [Downloadable!]
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  14. Gaudet, Gerard & Salant, Stephen W, 1991. "Uniqueness of Cournot Equilibrium: New Results from Old Methods," Review of Economic Studies, Blackwell Publishing, vol. 58(2), pages 399-404, April. [Downloadable!] (restricted)
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  15. Dafna Eshel, 2005. "Optimal Allocation of Tradable Pollution Rights and Market Structures," Journal of Regulatory Economics, Springer, vol. 28(2), pages 205-223, 09. [Downloadable!] (restricted)
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