Controlling non-point source pollution in Cournot oligopolies with hyperbolic demand (original) (raw)
Related papers
Extended Oligopolies with Pollution Penalties and Rewards
Discrete Dynamics in Nature and Society, 2018
An extended n-firm oligopoly with product differentiation is considered. It is assumed that the government selects an emission standard for the industry and based on the output and technology of each firm it selects a maximum allowed amount of emission for each firm. If the actual amount is higher than the allowed maximum, then the firm has to pay a constant multiple of the excess to the government; otherwise it is rewarded similarly based on the saved emission amount. The existence of the unique interior equilibrium is first proved, and then the effect of the level of penalty or reward and that of the emission standard on the industry output and therefore on the total emission level is also examined. Time delay is introduced into the penalties the firms have to pay and into the rewards the firms receive. In analyzing the stability of the equilibrium both discrete and continuous time scales are considered. For mathematical simplicity the case of symmetric firms is analyzed. In the d...
Asymmetric Regulation of Identical Polluters in Oligopoly Models
Studies of second-best environmental regulation of identical polluting agents have invariably ignored potentially welfare-improving asymmetric regulation by imposing equal regulatory treatment of identical¯rms at the outset. Yet, cost asymmetry between oligopoly¯rms may well give rise to private as well as social gains. A trade-o® is demonstrated for the regulator, between private costs savings and additional social costs when asymmetric treatment is allowed. Asymmetry is indeed optimal for a range of plausible parameter values. Further, it is demonstrated that for a broad class of abatement cost functions, there is scope for increasing welfare while keeping both total output and total emission constant. Some motivating policy issues are discussed in light of the results, including international harmonization and global carbon dioxide reduction.
Emission taxes and feed-in subsidies in the regulation of a polluting monopoly
SERIEs, 2020
The paper studies the use of emission taxes and feed-in subsidies for the regulation of a monopoly that can produce the same good with a technology that employs a polluting input and a clean technology. In the first part of the paper, we show that the efficient solution can be implemented combining a tax on emissions and a subsidy on clean output. The tax is lower than the environmental damages, and the subsidy is equal to the difference between the price and the marginal revenue. In the second part of the paper, the second-best tax and subsidy are also calculated solving a two-stage policy game between the regulator and the monopoly with the regulator acting as the leader of the game. We find that the second-best tax rate can be the Pigouvian tax, but only if the marginal costs of the clean technology are constant. Using a linear–quadratic specification of the model, we show that the clean output is larger when a feed-in subsidy is used than when the tax is applied, but the dirty o...
Optimal Environmental Policy for a Polluting Monopoly with Abatement Costs: Taxes Versus Standards
Environmental Modeling & Assessment, 2018
In this paper, we characterize the optimal environmental policy for a polluting monopoly that devotes resources to abatement activities when damages are caused by a stock pollutant. With this aim, we calculate the stagewise feedback Stackelberg equilibrium of a (differential) policy game where the regulator is the leader and the monopolist is the follower. Our analysis shows that the first-best policy consists of applying a Pigouvian tax and a subsidy on production equal to the difference between the price and the marginal revenue. However, for a stock pollutant, the Pigouvian tax is not equal to the marginal damages but is given by the difference between the social and private valuation of the pollution stock. On the other hand, if a second-best emission tax is used, the tax is lower than the Pigouvian tax and the difference decreases with the price elasticity of the demand. Finally, we find that taxes and standards are equivalent in a second-best setting. In the second part of the paper, we solve a linear-quadratic differential game and we obtain that the first-best tax increases with the pollution stock whereas the subsidy decreases. Moreover, the tax is negative for low values of the pollution stock, i.e., for low values of the pollution stock, we obtain that the social valuation of the stock is lower than the private valuation. Furthermore, when a second-best policy is applied, the steady-state pollution stock is lower than the steady-state pollution stock associated with the efficient outcome.
Noncompliant Oligopolistics Firms and Marketable Pollution Permits: Statics and Dynamics
Annals of Operations Research, 2000
In this paper, we consider the modeling, analysis, and computation of solutions to both static and dynamic models of multiproduct, multi pollutant noncompliant oligopolistic firms who engage in a market for pollution permits. In the case of the static model, we utilize variational inequality theory for the formulation of the governing equilibrium conditions as well as the qualitative analysis of the equilibrium pattem, including sensitivity analysis. We then propose a dynamic model, using the theory of projected dynamical systems, whose set of stationary points coincides with the set of solutions to the variational inequality problem. We propose an algorithm, which is a discretization in time of the dynamic adjustment process, and provide convergence results using the stability analysis results that are also provided herein. Finally, we apply the algorithm to several numerical examples to compute the profitmaximized quantities of the oligopolistic firms' products and the quantities of emissions, along with the equilibrium allocation of licenses and their prices, as well as the possible noncompliant overflows and underflows. This is the first time that these methodologies have been utilized in conjunction to study a problem drawn from environmental policy modeling and analysis.
In this paper we evaluate tlle effeetiveness of alternative regulatory policies on redueing aggregate pollution in an environmental1y differentiated market. Two frrms frrst ehoose their environmental quality and then their priees in a market where eonsumers differ in their valuations of the environmental features of the produets. We frrst show that environmental standards may have an adverse impaet on aggregate pollution. Moreover, we fmd that a uniform ad-valorem tax rate unambiguously increases the level of pollution in the market. When the tax rate is set in favor of the environmentally eleaner produet, aggregate pollution deereases. Finally, direet subsidies on the abatement technology always decrease pollution.
Environmental Regulation in Vertically Coordinated Industries
Many notable pollution problems occur in industries where production is carried out under vertical coordination arrangements that are characterized by conditions of double moral hazard. In contrast to situations characterized by full information, we show that standard prescriptions of environmental economics do not apply. Imposing a Pigouvian tax equal to the marginal cost of pollution does not lead to the first best level of pollution. The equilibrium levels of production and pollution are not independent of which agent is taxed. Making either agent or the industry as a whole financially liable for full environmental damage at the margin similarly does not lead to a first best level of pollution. On the contrary, under conditions of double moral hazard, the industry should pay for less than the full cost of environmental damage. At present, only one agent (if any) is typically liable for environmental damage. We derive conditions under which imposing new regulations that make only ...
The optimal pricing of pollution when enforcement is costly
Journal of Environmental Economics and Management, 2009
We consider the pricing of a uniformly mixed pollutant when enforcement is costly with a model of optimal, possibly firm-specific, emissions taxes and their enforcement. We argue that optimality requires an enforcement strategy that induces full compliance by every firm. This holds whether or not regulators have complete information about firms' abatement costs, the costs of monitoring them for compliance, or the costs of collecting penalties from noncompliant firms. Moreover, ignoring several unrealistic special cases, optimality requires discriminatory emissions taxes except when regulators are unable to observe firms' abatement costs, the costs of monitoring individual firms, or any firm-specific characteristic that is known to be jointly distributed with either the firms' abatement costs or their monitoring costs. In many pollution control settings, especially those that have been subject to various forms of environmental regulation in the past, regulators are not likely to be so ill-informed about individual firms. In these settings, policies that set or generate a uniform pollution price like conventional designs involving uniform taxes and competitive emission trading with freely-allocated or auctioned permits will not be efficient.