ETS and Technological Innovation: A Random Matching Model
AbstractThe present paper investigates the functioning of an Emission Trading System (ETS) and its impact on the diffusion of environmental-friendly technological innovation in the presence of firms’ strategic behaviours and sanctions to non-compliant firms. For this purpose, we study an evolutionary game model with random matching, namely, a context in which a population of firms interact through pairwise random matchings. We assume that each firm has to decide whether to adopt a new clean technology or keep on using the old technology that requires pollution permits to operate and that the strategy whose expected payoff is greater than the average payoff spreads within the population at the expense of the alternative strategy (the so-called replicator dynamics). We investigate the technological dynamics and the stationary states that emerge from the model. From the analysis of the model, we show that by properly modifying the penalty on non-compliant firms, it is possible to shift from one dynamic regime to another and that an increase in permits trade can promote the diffusion of innovative pollution-free technologies.
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Bibliographic InfoPaper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2012.79.
Date of creation: Oct 2012
Date of revision:
Emissions Trading; Technological Innovation; Random Matching; Evolutionary Game; Penalty System; Strategic Behaviour;
Find related papers by JEL classification:
- C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
- C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
- C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
- C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
- O33 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
- Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation
- Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-01-26 (All new papers)
- NEP-ENE-2013-01-26 (Energy Economics)
- NEP-ENV-2013-01-26 (Environmental Economics)
- NEP-GTH-2013-01-26 (Game Theory)
- NEP-INO-2013-01-26 (Innovation)
- NEP-KNM-2013-01-26 (Knowledge Management & Knowledge Economy)
- NEP-ORE-2013-01-26 (Operations Research)
- NEP-REG-2013-01-26 (Regulation)
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