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To Commit or Not to Commit: Environmental Policy In Imperfectly Competitive Markets

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  • Emmanuel Petrakis

    () (Department of Economics, University of Crete, Greece)

  • Anastasios Xepapadeas

    () (Department of Economics, University of Crete, Greece)

Abstract

This paper investigates the effect of the government’s ability to commit, or not, to a specific level of environmental policy instrument, or environmental innovation and welfare in imperfectly competitive markets. We that under monopoly if the government is unable to commit, and follows thus a time consistent policy, then in general emission taxes are lower, while environmental innovation, profits and welfare are higher relative to the precommitment case. The monopoly results extend to the small numbers oligopoly, but they are reserved for the last numbers oligopoly case. Thus of the sufficiently large numbers of firms, emission taxes can be lower and innovation efforts and welfare can be higher under government commitment. The two policy regimes converge, regarding emission taxes, abetment effort and welfare, when the numbers of firms tends to infinity. Our findings indicate that, contrary to most of the results obtained previously, welfare gains can be achieve by either policy regime- precommitment or time consistent-depending on the numbers of firms in the industry.

Suggested Citation

  • Emmanuel Petrakis & Anastasios Xepapadeas, "undated". "To Commit or Not to Commit: Environmental Policy In Imperfectly Competitive Markets," Working Papers 0110, University of Crete, Department of Economics.
  • Handle: RePEc:crt:wpaper:0110
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    References listed on IDEAS

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    9. Carlin, Barbara A. & Dowling, Michael J. & Roering, William D. & Wyman, John & Kalinoglou, John & Clyburn, Greg, 1994. "Sleeping with the enemy: Doing business with a competitor," Business Horizons, Elsevier, vol. 37(5), pages 9-15.
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    Citations

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    Cited by:

    1. Petrakis, Emmanuel & Xepapadeas, Anastasios, 2003. "Location decisions of a polluting firm and the time consistency of environmental policy," Resource and Energy Economics, Elsevier, vol. 25(2), pages 197-214, May.
    2. repec:eee:eneeco:v:68:y:2017:i:c:p:116-123 is not listed on IDEAS
    3. Lambertini, Luca & Poyago-Theotoky, Joanna & Tampieri, Alessandro, 2017. "Cournot competition and “green” innovation: An inverted-U relationship," Energy Economics, Elsevier, pages 116-123.
    4. Stuart McDonald & Joanna Poyago-Theotoky, 2014. "Green Technology and Optimal Emissions Taxation," Working Papers 2014.59, Fondazione Eni Enrico Mattei.
    5. Fischer, Carolyn, 2011. "Market power and output-based refunding of environmental policy revenues," Resource and Energy Economics, Elsevier, vol. 33(1), pages 212-230, January.
    6. Moner-Colonques, R. & Rubio, S., 2015. "The timing of environmental policy in a duopolistic market," Economia Agraria y Recursos Naturales, Spanish Association of Agricultural Economists, vol. 15(1).
    7. Luca Lambertini & Giuseppe Pignataro & Alessandro Tampieri, 2015. "The effect of Environmental Quality Misperception on Investments and Regulation," CREA Discussion Paper Series 15-01, Center for Research in Economic Analysis, University of Luxembourg.
    8. Fischer, Carolyn, 2003. "Output-Based Allocation of Environmental Policy Revenues and Imperfect Competition," Discussion Papers dp-02-60, Resources For the Future.

    More about this item

    Keywords

    Emision Tax; Apatement effort; Time Consistent Policies; Precommitment; Monopoly; Oligopoly;

    JEL classification:

    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy

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