Game of Regional Environmental Policy: Europe and US

Abstract

We analyse a different timing implementation of environmental regulation and compare the effects on the markets from a policy innovation perspective. The paper addresses the question: Should a regulator try to commit to a policy (ex-ante regulation) or rather adapt its policy to a firm's decisions (ex-post)? The findings are of interest towards improving regulatory effectiveness and economics efficiencies, e.g. for the transatlantic regional relationship between EU and USA. Our findings highlight differences in policy timing between markets may be harmful. The transatlantic regulators should consider the timing of the policy innovation for the achievement of mutual benefits. AbstractWe analyse a different timing implementation of environmental regulation and compare the effects on the markets from a policy innovation perspective. The paper addresses the question: Should a regulator try to commit to a policy (ex-ante regulation) or rather adapt its policy to a firm's decisions (ex-post)? The findings are of interest towards improving regulatory effectiveness and economics efficiencies, e.g. for the transatlantic regional relationship between EU and USA. Our findings highlight differences in policy timing between markets may be harmful. The transatlantic regulators should consider the timing of the policy innovation for the achievement of mutual benefits.

To abate, or not to abate? A strategic approach on green production in Cournot and Bertrand duopolies

“…To test for an ex-post versus ex-ante dilemma one should introduce a non-linear environmental tax scheme in the abatement game or avoid considering a government that levies emission taxes by assuming a social planner that chooses the amount of abated pollutant, as e.g. in Asproudis et al (2019) and references cited therein. However, by assuming that the firm's choices about production and abatement are sequential, it is possible to build on a game where the timing is such that: at stage 1 each firm chooses the emission abatement effort to maximise profit; at stage 2 the regulator (government) chooses the emission tax to maximise social welfare; at stage 3 each firm chooses the output in the product market to maximise profit, then there may exist situations such that (A,A) is the Pareto efficient SPNE (deadlock) or multiple asymmetric Nash equilibria (A,NA) and (NA,A), where only one firm abates pollution.…”

Environmental Technological Choice in a Cournot-Bertrand Model

“…This cost represents diminishing returns to investment in environmental technology. 3 The closer to unit the value of technology k i is, the lower the adoption cost and the more polluting the technology will be (see also Asproudis and Gil Molto, 2014, and Asproudis et al 2018). Hence, there is a trade-o¤ between the cost of adapting greener technology and the reduced amount of the environmental tax.…”

“…Given their anti-pollution technology, …rms maximize their pro…ts, as expressed by (4), by optimally choosing the level of output q 1 (…rm 1) and price p 2 (…rm 2). The …rst order conditions (FOCs) 4 of the pro…t maximization problems yield the following reaction functions:…”

“…3 (4 3d 2 ) (8 8d 2 + d 4 ) t 2 + 2 (2 3d 2 + d 4 ) t 4 . Given d 2 (0; 1) and a > b a > 2t the numerator of the above di¤erence is negative.…”