Abstract
In a differential game between two symmetric firms, provided with a clean and a dirty production activity, it is analyzed how investment and emissions are affected by environmental regulation. If both firms face the same environmental policy, a stricter policy reduces long-run investment in the dirty activity, while the impact on the clean activity is ambiguous. Both long-run emissions of each firm and total emissions decrease. This result does not necessarily hold if both firms face different policy instruments: Each firm's investment levels increase with a stricter environmental policy towards its rival, which causes more emissions by this firm.
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Stimming, M. Capital-accumulation games under environmental regulation and duopolistic competition. Journal of Economics Zeitschrift für Nationalökonomie 69, 267–287 (1999). https://doi.org/10.1007/BF01231162
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DOI: https://doi.org/10.1007/BF01231162
Keywords
- differential game
- investment
- pollution
- emission taxes
- tradeable emission permits
- open-loop Nash equilibria
- duopolistic competition