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Environmental protection mechanisms and technological dynamics

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  • Antoci, Angelo
  • Borghesi, Simone
  • Russu, Paolo

Abstract

The paper proposes a new financial mechanism that could be implemented to protect the environment of a tourist region. For this purpose, we investigate the potential consequences of two financial activities, issued by the local government (\emph{G}) of a region\emph{\ R}, which work like contracts between \emph{G} and, respectively, visitors of\emph{\ R }and firms operating in\emph{\ R}. According to these contracts, agents who decide to visit \emph{R }(firms that decide to adopt an environmental friendly technology) have to buy an option that entitle them to get a partial or total reimbursement if environmental quality in \emph{R} turns out to be sufficiently low (high), namely, below (above) a given predetermined threshold level. Using a two-population evolutionary game model, we analyze the dynamics emerging from the model and prove that under such fund rising mechanism the virtuous equilibrium (in which all firms adopt the pollution-free technology and all agents choose to visit the region) is always locally attractive. Furthermore, we show that the attraction basin of the poverty trap equilibrium (in which no firm adopts the clean technology and no tourist comes the region) can be decreased by raising the reimbursement offered by the local government to the visitors. Finally, using numerical simulations, it can be shown that the dynamics of the model may give rise to another attractive stationary state in correspondence of the environmental quality threshold determined by the government, as well as to a limit cycle that oscillates around the threshold.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 36597.

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Date of creation: 2011
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Handle: RePEc:pra:mprapa:36597

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Keywords: environmental protection; financial instruments; technological innovation; evolutionary dynamics;

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References

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  1. Bartolini, Stefano & Bonatti, Luigi, 2003. "Undesirable growth in a model with capital accumulation and environmental assets," Environment and Development Economics, Cambridge University Press, vol. 8(01), pages 11-30, February.
  2. Di Vita, Giuseppe, 2009. "Legal families and environmental protection: Is there a causal relationship?," Journal of Policy Modeling, Elsevier, vol. 31(5), pages 694-707, September.
  3. Angelo Antoci & Simone Borghesi, 2010. "Environmental degradation, self-protection choices and coordination failures in a North–South evolutionary model," Journal of Economic Interaction and Coordination, Springer, vol. 5(1), pages 89-107, June.
  4. Coria, Jessica & Hennlock, Magnus, 2010. "Taxes, Permits and Costly Policy Response to Technological Change," Working Papers in Economics 442, University of Gothenburg, Department of Economics.
  5. Angelo Antoci & Simone Borghesi & Marcello Galeotti, 2008. "Should we replace the environment?: Limits of economic growth in the presence of self-protective choices," International Journal of Social Economics, Emerald Group Publishing, vol. 35(4), pages 283-297, March.
  6. Perrings, Charles, 1989. "Environmental bonds and environmental research in innovative activities," Ecological Economics, Elsevier, vol. 1(1), pages 95-110, February.
  7. Costanza, Robert & Perrings, Charles, 1990. "A flexible assurance bonding system for improved environmental management," Ecological Economics, Elsevier, vol. 2(1), pages 57-75, April.
  8. Montgomery, W. David, 1972. "Markets in licenses and efficient pollution control programs," Journal of Economic Theory, Elsevier, vol. 5(3), pages 395-418, December.
  9. Perrings,Charles, 1987. "Economy and Environment," Cambridge Books, Cambridge University Press, number 9780521340816.
  10. Antoci, Angelo & Galeotti, Marcello & Geronazzo, Lucio, 2007. "Visitor and firm taxes versus environmental options in a dynamical context," MPRA Paper 13667, University Library of Munich, Germany.
  11. Bartolini, Stefano & Bonatti, Luigi, 2002. "Environmental and social degradation as the engine of economic growth," Ecological Economics, Elsevier, vol. 43(1), pages 1-16, November.
  12. Requate, Till, 2005. "Dynamic incentives by environmental policy instruments--a survey," Ecological Economics, Elsevier, vol. 54(2-3), pages 175-195, August.
  13. Antoci, Angelo & Bartolini, Stefano, 1999. "Negative externalities as the engine of growth in an evolutionary context," MPRA Paper 13908, University Library of Munich, Germany.
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Cited by:
  1. Angelo Antoci & Simone Borghesi & Gerardo Marletto, 2012. "To drive or not to drive? A simple evolutionary model," ECONOMICS AND POLICY OF ENERGY AND THE ENVIRONMENT, FrancoAngeli Editore, vol. 2012(2), pages 31-47.

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