Regulating Environmental Externalities through Public Firms: A Differential Game

Arbeitspapier

We investigate the possibility of using public firms to regulate polluting emissions in a Cournot oligopoly where production takes place at constant returns to scale and entails a negative environmental externality. We model the problem as a differential game and investigate (i) the Cournot-Nash game among profit-seeking firms; (ii) the Markov Perfect Nash equilibrium under social planning, where the industry output is entirely controlled by a benevolent planner aiming at the maximisation of social welfare; and (iii) the Markov Perfect Nash equilibrium in a mixed setup where at least one firm is public, while the others remain profit-seeking agents. Our analysis identifies the conditions whereby having a mixed market as a regulatory instrument suffices to drive the industry to the same output, externality and social welfare as under planning, both along the optimal path and in steady state.

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• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Quaderni - Working Paper DSE ; No. 738

Classification and Topics

• Classification: Wirtschaft ; Stochastic and Dynamic Games; Evolutionary Games; Repeated Games ; Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection ; Externalities ; Oligopoly and Other Imperfect Markets ; Public Enterprises; Public-Private Enterprises ; Environmental Economics: General

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Dragone, Davide ; Lambertini, Luca ; Palestini, Arsen
• Event: Veröffentlichung
• (who): Alma Mater Studiorum - Università di Bologna, Dipartimento di Scienze Economiche (DSE)
• (where): Bologna
• (when): 2011

Further information

• DOI: doi:10.6092/unibo/amsacta/4503
• Handle: http://hdl.handle.net/10419/159579