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Environmental Standards and Cournot Duopoly: A Stability Analysis

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  • Luciano Fanti

Abstract

In this paper the dynamic effects of public environmental policies are investigated in a Cournot duopoly with both heterogeneous and homogeneous expectations in a context of limited rationality. It is shown that the increase in upper limits to emissions always tends to destabilise markets and generate a chaotic market dynamics in both cases. The policy implication of this result is that the use of environmental policies may favour market stability. It is also shown that higher costs of abatement technology entail a higher likelihood of stability loss (although in the heterogeneous expectations case also a decrease in costs may destabilise). Copyright Springer Science+Business Media Dordrecht 2015

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  • Luciano Fanti, 2015. "Environmental Standards and Cournot Duopoly: A Stability Analysis," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 61(4), pages 577-593, August.
    • Handle: RePEc:kap:enreec:v:61:y:2015:i:4:p:577-593
    DOI: 10.1007/s10640-014-9807-7
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    More about this item

    Keywords

    Environmental policies; Bifurcation; Chaos; Cournot; Oligopoly; Q52; C62; D43; L13;
    All these keywords.

    JEL classification:

    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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