The abatement game in a dynamic oligopoly: social welfare versus profits

Domenico Buccella, Luciano Fanti, Luca Gori () and Mauro Sodini ()
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Mauro Sodini: University of Naples ‘Federico II’

Annals of Operations Research, 2024, vol. 337, issue 3, No 13, 1037-1065

Abstract: Abstract This article considers an N-firm oligopoly with abating and non-abating firms and analyses a dynamic setting in which the environmental regulator sets the tax rate to incentivise firms to undertake emission-reduction actions according to different hypotheses (fixed rule and optimal rule). The behaviour of the public authority sharply affects the firm’s (individual) incentive to move towards the abatement activity over time. This changes the number of (non)abating firms on the market and the corresponding social welfare outcomes. The article eventually shows that the environmental policy may cause oscillations resulting in a coexistence of the two types of firms in the long term and pinpoints the welfare outcomes emerging in the model.

Keywords: Abatement; Oligopoly; Nash equilibrium; Environmental regulator; Dynamics (search for similar items in EconPapers)
JEL-codes: C62 D43 L13 O31 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s10479-023-05674-y

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