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Environmental innovation under Cournot competition

  • SANIN, Maria Eugenia
  • ZANAJ, Skerdilajda

    (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE))

In this paper, we address the incentives to invest in environmental innovation of enterprises that exercise market power in the output market and also buy and sell pollution permits. Differently from the existing literature, using a market approach we explicitly model the interaction between the output market, where firms play A la Cournot, and the permits market. We find that, in the new equilibrium firms behave symmetrically, that is, they either both innovate to protect their market share in the output market or they both choose not to innovate. Whether the innovation equilibrium arises or not depends on the output demand and on the productivity enhancement and not on the distribution of permits among firms. Finally, we show that, under this market configuration, collusion can be welfare enhancing

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2007050.

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Date of creation: 01 Jul 2007
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Handle: RePEc:cor:louvco:2007050
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  1. BRECHET, Thierry & JOUVET, Pierre-André, 2006. "Environmental innovation and the cost of pollution abatement," CORE Discussion Papers 2006040, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. GABSZEWICZ, Jean J. & GARELLA, Paolo G., 1995. ""Buy it or make it Yourself ?" A Paradox," CORE Discussion Papers 1995014, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Parry, Ian W H, 1998. "Pollution Regulation and the Efficiency Gains from Technological Innovation," Journal of Regulatory Economics, Springer, vol. 14(3), pages 229-54, November.
  4. Requate, Till, 1998. "Incentives to innovate under emission taxes and tradeable permits," European Journal of Political Economy, Elsevier, vol. 14(1), pages 139-165, February.
  5. Misiolek, Walter S. & Elder, Harold W., 1989. "Exclusionary manipulation of markets for pollution rights," Journal of Environmental Economics and Management, Elsevier, vol. 16(2), pages 156-166, March.
  6. Milliman, Scott R. & Prince, Raymond, 1989. "Firm incentives to promote technological change in pollution control," Journal of Environmental Economics and Management, Elsevier, vol. 17(3), pages 247-265, November.
  7. S. Baranzoni & P. Bianchi & L. Lambertini, 2000. "Market Structure," Working Papers 368, Dipartimento Scienze Economiche, Universita' di Bologna.
  8. BRECHET, Thierry & JOUVET, Pierre-André, . "Environmental innovation and the cost of pollution abatement revisited," CORE Discussion Papers RP -2020, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  9. GABSZEWICZ, Jean J. & ZANAJ, Skerdilajda, 2006. "Competition in successive markets : entry and mergers," CORE Discussion Papers 2006097, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  10. GABSZEWICZ, Jean J. & ZANAJ, Skerdilajda, . "Upstream market foreclosure," CORE Discussion Papers RP -2008, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  11. Gaudet, Gerard & Salant, Stephen W, 1991. "Uniqueness of Cournot Equilibrium: New Results from Old Methods," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 399-404, April.
  12. Dafna Eshel, 2005. "Optimal Allocation of Tradable Pollution Rights and Market Structures," Journal of Regulatory Economics, Springer, vol. 28(2), pages 205-223, 09.
  13. Montero, Juan-Pablo, 2002. "Permits, Standards, and Technology Innovation," Journal of Environmental Economics and Management, Elsevier, vol. 44(1), pages 23-44, July.
  14. Downing, Paul B. & White, Lawrence J., 1986. "Innovation in pollution control," Journal of Environmental Economics and Management, Elsevier, vol. 13(1), pages 18-29, March.
  15. SANIN, Maria Eugenia, 2006. "Market design in wholesale electricity markets," CORE Discussion Papers 2006100, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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