Differentiated goods in a dynamic Cournot duopoly with emission charges on outputs

Ahmad Naimzada and Marina Pireddu

No 471, Working Papers from University of Milano-Bicocca, Department of Economics

Abstract: We extend the dynamic Cournot duopoly framework with emission charges on outputs by Mamada and Perrings (2020), which encompassed homogeneous products in its original formulation, to the more general case of differentiated goods, in order to highlight the richness in its static and dynamic outcomes. In the model each firm is taxed proportionally to its own emission only and charge functions are quadratic. Moreover, due to an adjustment capacity constraint, firms partially modify their output level toward the best response. Like it happened in Mamada and Perrings (2020), the only model steady state coincides with the Nash equilibrium. We find that the full efficacy of the environmental policy, which applies to an equilibrium that is globally asymptotically stable anytime it is admissible, is achieved in the case of independent goods, as well as with a low interdependence degree between goods in absolute value, independently of being substitutes or complements. On the other hand, when goods are substitutes and their interdependence degree is high, the considered environmental policy is still able to reduce pollution at the equilibrium, but the latter is stable just when the policy intensity degree is high enough. When instead goods are complements and their interdependence degree is high in absolute value, the considered environmental policy produces detrimental effects on the pollution level and the unique equilibrium is always unstable, when admissible. This highlights that, from a static viewpoint, even in the absence of free riding possibilities, the choice of the mechanism to implement has to be carefully pondered, according to the features of the considered economy.

Keywords: dynamic Cournot duopoly; differentiated products; emission charges; pollution control; comparative statics; stability analysis. (search for similar items in EconPapers)
JEL-codes: C62 D43 Q51 Q58 (search for similar items in EconPapers)
Pages: 14
Date: 2021-06
New Economics Papers: this item is included in nep-com, nep-ene, nep-env and nep-gth
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://repec.dems.unimib.it/repec/pdf/mibwpaper471.pdf (application/pdf)

Related works:
Journal Article: Differentiated goods in a dynamic Cournot duopoly with emission charges on output (2023)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:mib:wpaper:471

Access Statistics for this paper

More papers in Working Papers from University of Milano-Bicocca, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Matteo Pelagatti ().