Environmental standards and Cournot duopoly: a stability analysis

Luciano Fanti

Discussion Papers from Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy

Abstract: In this paper the dynamical effects of public environmental policies are investigated in a Cournot duopoly with heterogeneous expectations in a context of limited rationality. It is shown that the introduction of upper limits to emissions always tends to destabilise and generate a chaotic market dynamics. By contrast the role played by the cost of the abatement technology is more complicated, although in most cases higher costs imply a higher likelihood of stability loss, in some cases increases of such costs when their level is sufficiently low tends to stabilise and in such cases if the market is stable either a decrease or an increase of such costs may lead to a stability loss. The policy implications of these results suggest caution in the use of environmental policies from a market stability point of view.

Keywords: Environmental policies; Bifurcation; Chaos; Cournot; Oligopoly. (search for similar items in EconPapers)
JEL-codes: C62 D43 L13 Q52 (search for similar items in EconPapers)
Date: 2012-09-01
New Economics Papers: this item is included in nep-bec, nep-ene, nep-env and nep-reg
Note: ISSN 2039-1854
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Related works:
Journal Article: Environmental Standards and Cournot Duopoly: A Stability Analysis (2015)
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