Regulating Environmental Externalities Through Public Firms: A Differential Game

Dragone, Davide ; Lambertini, Luca ; Palestini, Arsen (2011) Regulating Environmental Externalities Through Public Firms: A Differential Game. Bologna: Dipartimento di Scienze economiche DSE, p. 24. DOI 10.6092/unibo/amsacta/4503. In: Quaderni - Working Paper DSE (738). ISSN 2282-6483.
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Abstract

We investigate the possibility of using public firms to regulate polluting emissions in a Cournot oligopoly where production takes place at constant returns to scale and entails a negative environmental externality. We model the problem as a differential game and investigate (i) the Cournot-Nash game among profit-seeking firms; (ii) the Markov Perfect Nash equilibrium under social planning, where the industry output is entirely controlled by a benevolent planner aiming at the maximisation of social welfare; and (iii) the Markov Perfect Nash equilibrium in a mixed setup where at least one firm is public, while the others remain profit-seeking agents. Our analysis identifies the conditions whereby having a mixed market as a regulatory instrument suffices to drive the industry to the same output, externality and social welfare as under planning, both along the optimal path and in steady state.

Abstract
Document type
Monograph (Working Paper)
Creators
CreatorsAffiliationORCID
Dragone, Davide
Lambertini, Luca
Palestini, Arsen
Keywords
pollution, public firms, oligopoly, Markov perfect strategy
Subjects
ISSN
2282-6483
DOI
Deposit date
02 Feb 2016 11:24
Last modified
02 Feb 2016 11:24
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