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Environmental Policy in an International Duopoly: An Analysis of Feedback Investment Strategies

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Author Info

  • Feenstra, T.L.
  • Kort, P.M.
  • Zeeuw, A.J. de

    (Tilburg University, Center for Economic Research)

Abstract

This paper discusses environmental policy instruments in a differential-game model of international trade with oligopolistic competition. Strategic interactions occur if firms use feedback strategies and therefore react on decisions of their competitor. Eventually this harms firm profits, because all firms act strategically. A firm reacts differently if its competitor is subject to an environmental standard than if it is subject to an environmental tax. Under open-loop investment strategies and feedback strategies of energy use, environmental taxes always give rise to more investment for strategic reasons than standards. This confirms results of multistage staticmodels of the same problem. The new result is that under feedback investment strategies the reverse can be the case.

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 1997-43.

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Date of creation: 1997
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Handle: RePEc:dgr:kubcen:199743

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Web page: http://center.uvt.nl

Related research

Keywords: Environmental policy competition; Duopoly; Differential game;

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References

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  1. Ilmakunnas, P & Torma, H, 1994. "Energy Crises and Change of Technology," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 9(3), pages 305-20, July-Sept.
  2. James A. Brander & Barbara J. Spencer, 1983. "Strategic Commitment with R&D: The Symmetric Case," Bell Journal of Economics, The RAND Corporation, vol. 14(1), pages 225-235, Spring.
  3. Fershtman, C. & Zeeuw, A.J. de, 1991. "Capital accumulation and entry deterrence: A clarifying note," Discussion Paper 1991-41, Tilburg University, Center for Economic Research.
  4. Hartl, R.F. & Kort, P.M., 1995. "Capital Accumulation of a Firm Facing an Emissions Tax," Papers 9578, Tilburg - Center for Economic Research.
  5. Kennedy Peter W., 1994. "Equilibrium Pollution Taxes in Open Economies with Imperfect Competition," Journal of Environmental Economics and Management, Elsevier, vol. 27(1), pages 49-63, July.
  6. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
  7. Morrison, C J, 1994. "The Cyclical Nature of Markups in Canadian Manufacturing: A Production Theory Approach," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 9(3), pages 269-82, July-Sept.
  8. Morrison, Catherine J, 1993. "Investment in Capital Assets and Economic Performance: The U.S. Chemicals and Primary-Metals Industries in Transition," Journal of Business & Economic Statistics, American Statistical Association, vol. 11(1), pages 45-60, January.
  9. Alistair fnUlph, 1996. "Environmental policy instruments and imperfectly competitive international trade," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 7(4), pages 333-355, June.
  10. Pindyck, Robert S & Rotemberg, Julio J, 1983. "Dynamic Factor Demands and the Effects of Energy Price Shocks," American Economic Review, American Economic Association, vol. 73(5), pages 1066-79, December.
  11. Flaherty, M Therese, 1980. "Industry Structure and Cost-Reducing Investment," Econometrica, Econometric Society, vol. 48(5), pages 1187-1209, July.
  12. Feenstra, T.L. & Kort, P.M. & Verheijen, P.A. & Zeeuw, A.J. de, 1996. "Standards versus taxes in a dynamic duopoly model of trade," Open Access publications from Tilburg University urn:nbn:nl:ui:12-72169, Tilburg University.
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Cited by:
  1. Martina Stimming, 1999. "Capital-accumulation games under environmental regulation and duopolistic competition," Journal of Economics, Springer, vol. 69(3), pages 267-287, October.

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