Being green first: Simultaneous vs. sequential abatement decisions

John C. Strandholm, Ana Espinola-Arredondo and Felix Munoz-Garcia

Economics Letters, 2023, vol. 227, issue C

Abstract: We investigate the effect of the timing of green technology investment in a polluting duopoly facing environmental regulation. We consider a three-stage game where (i) firms sequentially choose their investment in the first stage, (ii) the regulator sets the optimal emission fee in the second stage, and (iii) the polluting good is produced in the third stage. When free-riding incentives are strong the leader enjoys a first-mover advantage, investing less in abatement than the follower, as in sequential public good games. We also show that sequential investment decisions achieve higher abatement than simultaneous decisions, and identify in which settings such a difference is the largest.

Keywords: Green technology; Sequential investment; Abatement; Emission fees; Free-riding incentives (search for similar items in EconPapers)
JEL-codes: D43 H23 Q55 Q58 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:227:y:2023:i:c:s0165176523001489

DOI: 10.1016/j.econlet.2023.111123

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