Skip to main content
SpringerLink
Log in

Capital-accumulation games under environmental regulation and duopolistic competition

  • Articles
  • Published:
Journal of Economics Aims and scope Submit manuscript

Abstract

In a differential game between two symmetric firms, provided with a clean and a dirty production activity, it is analyzed how investment and emissions are affected by environmental regulation. If both firms face the same environmental policy, a stricter policy reduces long-run investment in the dirty activity, while the impact on the clean activity is ambiguous. Both long-run emissions of each firm and total emissions decrease. This result does not necessarily hold if both firms face different policy instruments: Each firm's investment levels increase with a stricter environmental policy towards its rival, which causes more emissions by this firm.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

References

  • Arrow, K. J. (1968): “Optimal Capital Policy with Irreversible Investment.” InValue, Capital and Growth, edited by J. N. Wolfe. Chicago: Aldine.

    Google Scholar 

  • Barrett, S. (1994): “Climate Change Policy and International Trade.” Working Paper 12/94, Centre for Social and Economic Research on the Global Environment, Norwich.

    Google Scholar 

  • — (1995a): “Toward a Theory of International Environmental Cooperation.” Working Paper 60.95, Fondazione ENI Enrico Mattei, Milano.

    Google Scholar 

  • — (1995b): “Heterogeneous International Environmental Agreements.” Working Paper 79.95, Fondazione ENI Enrico Mattei, Milano.

    Google Scholar 

  • Brock, W. A., and Malliaris, A. G. (1989):Differential Equations, Stability and Chaos in Dynamic Economics. Amsterdam: North-Holland.

    Google Scholar 

  • Buchanan, J. M. (1969): “External Diseconomies, Corrective Taxes, and Market Structure.”American Economic Review 59: 174–177.

    Google Scholar 

  • Cansier, D. (1993):Umweltökonomie. Stuttgart: Fischer.

    Google Scholar 

  • Carraro, C., and Siniscalco, D. (1992): “The International Dimension of Environmental Policy.”European Economic Review 36: 379–387.

    Google Scholar 

  • — (1993): “Strategies for the International Protection of the Environment.”Journal of Public Economics 52: 309–328.

    Google Scholar 

  • Carraro, C., and Soubeyran, A. (1996): “Environmental Taxation, Market Share, and Profits in Oligopoly.” InEnvironmental Policy and Market Structure, edited by C. Carraro, Y. Katsoulacos, and A. Xepapadeas. Dordrecht: Kluwer.

    Google Scholar 

  • Dierickx, I., Matutes, C., and Neven, D. (1988): “Indirect Taxation and Cournot Equilibrium.”International Journal of Industrial Organization 6: 385–399.

    Google Scholar 

  • Dixit, A. (1986): “Comparative Statics for Oligopoly.”International Economic Review 27: 107–122.

    Google Scholar 

  • Dockner, E. J., and Takahashi, H. (1990): “On the Saddle-Point Stability for a Class of Dynamic Games.”Journal of Optimization Theory and Applications 67: 247–258.

    Google Scholar 

  • Dockner, E. J., and van Long, N. V. (1993): “International Pollution Control: Cooperative versus Noncooperative Strategies.”Journal of Environmental Economics and Management 24: 13–29.

    Google Scholar 

  • Dung, T. H. (1993): “Optimal Taxation and Heterogenous Oligopoly.”Canadian Journal of Economics 26: 933–947.

    Google Scholar 

  • Ebert, U. (1991): “Pigouvian Tax and Market Structure: The Case of Oligopoly and Different Abatement Technologies.”Finanzarchiv 49: 154–166.

    Google Scholar 

  • — (1992): “On the Effect of Effluent Fees under Oligopoly: Comparative Static Analysis.” Discussion Paper no. V-82-91, Department of Economics, University of Oldenburg, Oldenburg.

    Google Scholar 

  • Feenstra, T., Kort, P. M., Verheyen, P., and de Zeeuw, A. (1996): “Standards versus Taxes in a Dynamic Duopoly Model of Trade.” InEconomic Policy for the Environment and Natural Resources: Techniques for the Management and Control of Pollution, edited by A. Xepapadeas. Cheltenham: Elgar.

    Google Scholar 

  • Feenstra, T., Kort, P.M., and de Zeeuw, A. (1997): “Environmental Policy in an International Duopoly: An Analysis of Feedback Investment Strategies.” Discussion Paper no. 9743, Center for Economic Research, Tilburg University.

  • Fershtman, C., and Muller, E. (1984): “Capital Accumulation Games of Infinite Duration.”Journal of Economic Theory 33: 322–339.

    Google Scholar 

  • Fudenberg, D., and Tirole, J. (1991):Game Theory. Cambridge, Mass.: MIT Press.

    Google Scholar 

  • Germain, M. (1989): “Externalités, taxation et traitement de la pollution dans le cadre d'un duopole de Cournot.”Recherches Economiques de Louvain 55: 273–292.

    Google Scholar 

  • Gould, J. P. (1968): “Adjustment Costs in the Theory of Investment of the Firm.”Review of Economic Studies 35: 47–56.

    Google Scholar 

  • Hartl, R. F., and Kort, P. M. (1996a): “Capital Accumulation of a Firm Facing Environmental Constraints.”Optimal Control Applications & Methods 17: 253–266.

    Google Scholar 

  • — (1996b): “Capital Accumulation of a Firm Facing an Emissions Tax.”Journal of Economics/Zeitschrift für Nationalökonomie 63: 1–23.

    Google Scholar 

  • — (1997): “Optimal Input Substitution of a Firm Facing an Environmental Constraint.”European Journal of Operational Research 99: 336–352.

    Google Scholar 

  • Hoel, M. (1991): “Global Environmental Problems: The Effects of Unilateral Actions Taken by One Country.”Journal of Environmental Economics and Management 20: 55–70.

    Google Scholar 

  • Hoog, G., and Steinmetz, A. (1993):International Conventions on Protection of Humanity and Environment. Englewood Cliffs: Prentice Hall.

    Google Scholar 

  • Holt, C., Modigliani, F., Muth, J. F., and Simon, H. A. (with contributions by Bonini, C. P., and Winters, P. R.) (1960):Planning, Production, Inventories, and Work Force. Englewood Cliffs: Prentice Hall.

    Google Scholar 

  • Katsoulacos, Y., and Xepapadeas, A. (1994): “Environmental Policy under Oligopoly with Endogenous Market Structure.” Discussion Paper no. 955, Center for Economic Policy Research, London.

    Google Scholar 

  • Katz, M. L., and Rosen, H. S. (1986): “Tax Analysis in an Oligopoly Model.”Public Finance Quarterly 13: 3–20.

    Google Scholar 

  • Kopp, R. J., and Smith, V. K. (1980): “Environmental Regulation and Optimal Investment Behavior: A Micro-Economic Analysis.”Regional Science and Urban Economics 10: 211–224.

    Google Scholar 

  • Kort, P. M. (1994a): “The Effects of Pollution Restrictions on Dynamic Investment Policy of a Firm.”Journal of Optimization Theory and Applications 83: 489–509.

    Google Scholar 

  • — (1994b): “The Effects of Marketable Pollution Permits on the Firm's Optimal Investment Policies.”Central European Journal for Operations Research and Economics 3: 139–155.

    Google Scholar 

  • — (1996): “Pollution Control and the Dynamics of the Firm: The Effects of Market Based Instruments on Optimal Firm Investments.”Optimal Control Applications & Methods 17: 267–279.

    Google Scholar 

  • Levin, D. (1985): “Taxation within Cournot Oligopoly.”Journal of Public Economics 27: 281–290.

    Google Scholar 

  • Michaelis, P. (1995): “Ökonomische Instrumente in der Umweltpolitik: Eine empirische Bestandsaufnahme.”Die Weltwirtschaft 1/95: 72–98.

    Google Scholar 

  • Okuguchi, K. (1993): “Unified Approach to Cournot Models: Oligopoly, Taxation and Aggregate Provision of a Pure Public Good.”European Journal of Political Economy 9: 233–245.

    Google Scholar 

  • Okuguchi, K., and Yamazaki, T. (1994): “Ad Valorem and Specific Taxes, and Optimal Pigouvian Tax within Cournot-Oligopoly.”Keio Economic Studies 31: 25–32.

    Google Scholar 

  • Pezzey, J. (1992): “Analysis of Unilateral CO2 Control in the European Community and OECD.”Energy Journal 13: 159–171.

    Google Scholar 

  • Pindyck, R. S. (1991): “Irreversibility, Uncertainty, and Investment.”Journal of Economic Literature 29: 1110–1148.

    Google Scholar 

  • Requate, T. (1993a): “Pollution Control in a Cournot Oligopoly via Taxes or Permits.”Journal of Economics/Zeitschrift für Nationalökonomie 58: 255–291.

    Google Scholar 

  • — (1993b): “Pollution Control under Imperfect Competition: Asymmetric Bertrand Duopoly with Linear Technologies.”Journal of Institutional and Theoretical Economics 149: 415–442.

    Google Scholar 

  • Reynolds, S. S. (1987): “Capacity Investment, Preemption and Commitment in an Infinite Horizon Model.”International Economic Review 28: 69–88.

    Google Scholar 

  • Seierstad, A., and Sydsæter, K. (1987):Optimal Control Theory with Economic Applications. Amsterdam: North-Holland.

    Google Scholar 

  • Siebert, H. (1992):Economics of the Environment, 3rd ed. Berlin: Springer.

    Google Scholar 

  • Simpson, R. D. (1995): “Optimal Pollution Taxation in a Cournot Duopoly.”Environmental and Resource Economics 6: 359–369.

    Google Scholar 

  • Söderström, H. T. (1976): “Production and Investment under Costs of Adjustment.”Zeitschrift für Nationalökonomie 36: 369–388.

    Google Scholar 

  • Stähler, F. (1996): “Reflections on Multilateral Environmental Agreements.” InEconomic Policy for the Environment and Natural Resources: Techniques for the Management and Control of Pollution, edited by A. Xepapadeas. Cheltenham: Elgar.

    Google Scholar 

  • Stimming, M. (1996): “Kapitalakkumulationsspiele im Angebotsduopol unter Berücksichtigung umweltpolitischer Maßnahmen: Ein Vergleich von Emissionssteuern und handelbaren Emissionsrechten.” Preprint Nr. 20/96, Universität Magdeburg, Magdeburg.

    Google Scholar 

  • Uimonen, S. (1994): “Emission Taxes versus Financial Subsidies in Pollution Control.”Journal of Economics/Zeitschrift für Nationalökonomie 60: 281–297.

    Google Scholar 

  • Ulph, A. (1994): “Environmental Policy, Plant Location and Government Protection.” InTrade, Innovation, Environment, edited by C. Carraro. Dordrecht: Kluwer.

    Google Scholar 

  • Van Hilten, O., Kort, P. M., and van Loon, P. J. J. M. (1993):Dynamic Policies of the Firm. Berlin: Springer.

    Google Scholar 

  • Weimann, J. (1995):Umweltökonomik, 3rd ed. Berlin: Springer.

    Google Scholar 

  • Winters, L. A. (1992): “The Trade and Welfare Effects of Greenhouse Gas Abatement: A Survey of Empirical Estimates.” InThe Greening of World Trade Issues, edited by K. Anderson and R. Blackhurst. London: Harvester Wheatsheaf.

    Google Scholar 

  • Xepapadeas, A. P. (1992): “Environmental Policy, Adjustment Costs and Behavior of the Firm.”Journal of Environmental Economics and Management 23: 258–275.

    Google Scholar 

Download references

Author information

Author notes

  1. Martina Stimming

    Present address: Department of Economics, University of Magdeburg, P. O. Box 4120, D-39016, Magdeburg, Germany

Authors and Affiliations

    Authors
    1. Martina Stimming
      View author publications

      You can also search for this author in PubMed Google Scholar

    Rights and permissions

    Reprints and permissions

    About this article

    Cite this article

    Stimming, M. Capital-accumulation games under environmental regulation and duopolistic competition. Journal of Economics Zeitschrift für Nationalökonomie 69, 267–287 (1999). https://doi.org/10.1007/BF01231162

    Download citation

    • Received:

    • Revised:

    • Issue Date:

    • DOI: https://doi.org/10.1007/BF01231162

    Keywords

    JEL classification

    Search

    Navigation