Cobb-Douglas Preferences and Pollution in a Bilateral Oligopoly Market

Kabré Anicet B. ()
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Kabré Anicet B.: EconomiX-CNRS UMR 7235, Université Paris-Nanterre, Bureau G517B, 200 Avenue de la République, 92001 Nanterre Cedex, France

The B.E. Journal of Theoretical Economics, 2023, vol. 23, issue 1, 49-71

Abstract: In this paper, we investigate how pollution changes with preferences, focusing on a finite bilateral oligopoly model where agents have asymmetric Cobb-Douglas preferences. Producers are also consumers and the choice of heterogeneous preferences is related to the psychological foundations and identity aspects of group membership. We compare two strategic equilibria: the Stackelberg-Cournot equilibrium with pollution (SCEP) and the Cournot equilibrium with pollution (CEP). We show that considering the asymmetric preferences helps the public decision-maker to identify precisely the category of agents (consumer–producers or pure-consumers) for which a change in environmental preference parameters will most effectively reduce pollution. Furthermore, we find that firms’ emissions’ elasticity decreases with market power (when the market power increases) if their marginal cost is lower than their competitor. Finally, we show that when producers are also consumers, an action on pure-consumers’ preference parameters reduces more emissions than a similar action on consumer–producers, and this regardless of the timing of interaction.

Keywords: market power; bilateral oligopoly; pollution; Cobb–Douglas preferences (search for similar items in EconPapers)
JEL-codes: D43 D51 Q52 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1515/bejte-2020-0090

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