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International Rivalry of Polluting Firms Under Flexible Regulation


  • Antoniou, Fabio
  • Hatzipanayotou, Panos


We construct a model of strategic environmental policy with flexible regulation in an international duopoly context. Firms can affect future environmental regulation through a prior investment in abatement. We demonstrate that the strategic use of environmental policy leads to lower welfare and higher pollution. We further illustrate that when the policy instrument in use is emission standards, then pollution, profits and welfare are higher compared to the case where pollution taxes are implemented. Finally, we claim that flexibility in environmental policy is superior in terms of profits and welfare relative to a prior commitment to a certain emission standard.

Suggested Citation

  • Antoniou, Fabio & Hatzipanayotou, Panos, 2011. "International Rivalry of Polluting Firms Under Flexible Regulation," Strategic Behavior and the Environment, now publishers, vol. 1(2), pages 151-174, April.
  • Handle: RePEc:now:jnlsbe:102.00000007
    DOI: 10.1561/102.00000007

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    More about this item


    Flexible regulation; Strategic environmental policy; Open economies; Imperfect competition; Commitment versus flexibility;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
    • F18 - International Economics - - Trade - - - Trade and Environment
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth


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