Environmental innovation under Cournot competition

Sanin Maria Eugenia and Skerdilajda Zanaj
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Sanin Maria Eugenia: UNIVERSITE CATHOLIQUE DE LOUVAIN, Center for Operations Research and Econometrics (CORE)
Authors registered in the RePEc Author Service: María Eugenia Sanin Vázquez

No 2007031, Discussion Papers (ECON - Département des Sciences Economiques) from Université catholique de Louvain, Département des Sciences Economiques

Abstract: 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 à 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.

Keywords: environmental innovation; tradable permits; interaction à la Cournot (search for similar items in EconPapers)
JEL-codes: D43 L13 Q55 (search for similar items in EconPapers)
Pages: 30
Date: 2007-09-01
New Economics Papers: this item is included in nep-com, nep-env, nep-ino and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Working Paper: Environmental innovation under Cournot competition (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:ctl:louvec:2007031

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