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Environmental standards and Cournot duopoly: a stability analysis

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  • Luciano Fanti
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    Abstract

    In this paper the dynamical effects of public environmental policies are investigated in a Cournot duopoly with heterogeneous expectations in a context of limited rationality. It is shown that the introduction of upper limits to emissions always tends to destabilise and generate a chaotic market dynamics. By contrast the role played by the cost of the abatement technology is more complicated, although in most cases higher costs imply a higher likelihood of stability loss, in some cases increases of such costs when their level is sufficiently low tends to stabilise and in such cases if the market is stable either a decrease or an increase of such costs may lead to a stability loss. The policy implications of these results suggest caution in the use of environmental policies from a market stability point of view.

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    Bibliographic Info

    Paper provided by Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy in its series Discussion Papers with number 2012/154.

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    Date of creation: 01 Sep 2012
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    Handle: RePEc:pie:dsedps:2012/154

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    Related research

    Keywords: Environmental policies; Bifurcation; Chaos; Cournot; Oligopoly.;

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    16. Maskin, Eric & Tirole, Jean, 1988. "A Theory of Dynamic Oligopoly, II: Price Competition, Kinked Demand Curves, and Edgeworth Cycles," Econometrica, Econometric Society, vol. 56(3), pages 571-99, May.
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