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To Commit or Not to Commit: Environmental Policy In Imperfectly Competitive Markets

Emmanuel Petrakis and Anastasios Xepapadeas

No 110, Working Papers from University of Crete, Department of Economics

Abstract: This paper investigates the effect of the government’s ability to commit, or not, to a specific level of environmental policy instrument, or environmental innovation and welfare in imperfectly competitive markets. We that under monopoly if the government is unable to commit, and follows thus a time consistent policy, then in general emission taxes are lower, while environmental innovation, profits and welfare are higher relative to the precommitment case. The monopoly results extend to the small numbers oligopoly, but they are reserved for the last numbers oligopoly case. Thus of the sufficiently large numbers of firms, emission taxes can be lower and innovation efforts and welfare can be higher under government commitment. The two policy regimes converge, regarding emission taxes, abetment effort and welfare, when the numbers of firms tends to infinity. Our findings indicate that, contrary to most of the results obtained previously, welfare gains can be achieve by either policy regime- precommitment or time consistent-depending on the numbers of firms in the industry.

Keywords: Emision Tax; Apatement effort; Time Consistent Policies; Precommitment; Monopoly; Oligopoly (search for similar items in EconPapers)
JEL-codes: L12 Q25 Q28 (search for similar items in EconPapers)
Pages: 69 pages
New Economics Papers: this item is included in nep-env, nep-mic and nep-res
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Citations: View citations in EconPapers (25)

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