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Emission permits, innovation and sanction in an evolutionary game

Author

Listed:
  • Angelo Antoci

    (University of Sassari)

  • Simone Borghesi

    (European University Institute
    University of Siena)

  • Gianluca Iannucci

    (University of Firenze)

  • Paolo Russu

    (University of Sassari)

Abstract

This paper studies the evolutionary dynamics of a market regulated by an auctioned emission trading system with a price floor in which there exist three populations of firms that interact strategically: (i) non-polluting, (ii) polluting and compliant, (iii) polluting but non-compliant. Firms that adopt a non-polluting technology need no permits to operate, while firms that use a polluting technology can either buy the required permits (and be compliant) or not (being non-compliant). The latter do not buy emission permits and face the risk to be sanctioned if discovered. From the analysis of the model emerges that all three types of firms coexist at the equilibrium only under specific parameter values. More precisely, it can generically be excluded the coexistence between non-polluting firms and non-compliant polluting ones. The regulatory authority can favor the extinction of non-compliant firms by increasing their probability of being discovered and/or the sanction level. Moreover, the regulatory authority can favor the diffusion of innovation by increasing the permits price floor since polluting-compliant firms exit the market and new non-polluting firms enter the market. However, this policy instrument should be used with caution because it tends to increase also the number of non-compliant firms.

Suggested Citation

  • Angelo Antoci & Simone Borghesi & Gianluca Iannucci & Paolo Russu, 2020. "Emission permits, innovation and sanction in an evolutionary game," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 37(2), pages 525-546, July.
    • Handle: RePEc:spr:epolit:v:37:y:2020:i:2:d:10.1007_s40888-020-00179-4
    DOI: 10.1007/s40888-020-00179-4
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    References listed on IDEAS

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    Cited by:

    1. Ilaria Colivicchi & Gianluca Iannucci, 2023. "The Environmental Responsibility of Firms and Insurance Coverage in an Evolutionary Game," Dynamic Games and Applications, Springer, vol. 13(3), pages 801-818, September.
    2. Ahmad Naimzada & Marina Pireddu, 2023. "Differentiated goods in a dynamic Cournot duopoly with emission charges on output," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 46(1), pages 305-318, June.
    3. Yuechao Chao & Gang Wang, 2023. "Analyzing the Effects of Governmental Policy and Solar Power on Facilitating Carbon Neutralization in the Context of Energy Transition: A Four-Party Evolutionary Game Study," Sustainability, MDPI, vol. 15(6), pages 1-21, March.

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