Environmental regulation under sequential competition

Pak-Sing Choi, Ana Espinola-Arredondo and Felix Munoz-Garcia

Journal of Economic Behavior & Organization, 2024, vol. 221, issue C, 52-72

Abstract: We examine a polluting industry, competing à la Stackelberg, facing emission fees. We evaluate the leader's output advantage, disentangling two effects: the first-mover and cost advantage. We show that environmental regulation decreases the leader's output advantage; a reduction that is emphasized when pollution is more severe, but ameliorated by the leader's cost efficiency. We also measure the fee and welfare inefficiency arising if the regulator incorrectly assumes that the industry competes simultaneously, identifying in which settings this inefficiency is the largest. Our extensions consider investment in abatement, several leaders and followers, firm-specific emission fees, differentiated products, and a follower's cost advantage.

Keywords: Stackelberg competition; Pollution; Cournot competition; Cost asymmetry; Output advantage; Environmental regulation; Emission fees (search for similar items in EconPapers)
JEL-codes: H23 L13 L51 Q58 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:221:y:2024:i:c:p:52-72

DOI: 10.1016/j.jebo.2024.03.014

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