Environmental innovation under Cournot competition

María Eugenia Sanin Vázquez and Skerdilajda Zanaj

No 2007050, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: In this paper, we address the incentives to invest in environmental innovation of enterprises that exercise market power in the output market and also buy and sell pollution permits. Differently from the existing literature, using a market approach we explicitly model the interaction between the output market, where firms play A la Cournot, and the permits market. We find that, in the new equilibrium firms behave symmetrically, that is, they either both innovate to protect their market share in the output market or they both choose not to innovate. Whether the innovation equilibrium arises or not depends on the output demand and on the productivity enhancement and not on the distribution of permits among firms. Finally, we show that, under this market configuration, collusion can be welfare enhancing

Keywords: environmental innovation; tradable permits; interaction à la Cournot (search for similar items in EconPapers)
JEL-codes: D43 L13 Q55 (search for similar items in EconPapers)
Date: 2007-07-01
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Clean Technology Adoption Under Cournot Competition (2012)
Working Paper: Environmental innovation under Cournot competition (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:cor:louvco:2007050

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