Managing the tragedy of commons and polluting emissions: Bertrand vs Cournot

This paper proposes a comparative assessment, under price or quantity competition, of the effectiveness of emission taxation in triggering firms’ investments in abatement technologies while extracting a renewable resource used as a productive asset to deliver the final good to consumers. Environmental policy is coupled with regulated access to the common pool driving the industry to harvest in correspondence of the maximum sustainable yield. The analysis relies on a state-redundant differential game whose open-loop equilibrium is a degenerate feedback one. Irrespective of the nature of competition, regulating access grants the public authority the possibility of using the tax to minimise emissions, whereby at equilibrium aggregate output, emissions, the residual resource stock and consumer surplus are the same across market regimes, although the number of firms differs. Out of equilibrium, there emerges that price competition facilitates the regulator’s task as price-setting firms are more sensitive to the emission tax and react investing more on aggregate. Finally, the strong version of the Porter hypothesis is validated at the steady state Bertrand equilibrium.