Regulating Environmental Externalities through Public Firms: A Differential Game

Davide Dragone, Luca Lambertini () and Arsen Palestini ()

Working Papers from Dipartimento Scienze Economiche, Universita' di Bologna

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.

JEL-codes: C73 D43 D62 L13 L32 Q50 (search for similar items in EconPapers)
Date: 2011-03
New Economics Papers: this item is included in nep-ene, nep-env, nep-gth and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Journal Article: Regulating Environmental Externalities through Public Firms: A Differential Game (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:bol:bodewp:wp738

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