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Environmental and Resource Economics

, Volume 70, Issue 1, pp 147–167 | Cite as

On Environmental Regulation of Oligopoly Markets: Emission versus Performance Standards

  • Rabah Amir
  • Adriana Gama
  • Katarzyna Werner
Article

Abstract

By specializing Montero’s (J Environ Econ Manag 44:23–44, 2002) model of environmental regulation under Cournot competition to an oligopoly with linear demand and quadratic abatement costs, we extend his comparison of firms incentives to invest in R&D under emission and performance standards by solving for a closed form solution of the underlying two-stage game. This allows for a full comparison of the two instruments in terms of their resulting propensity for R&D and equilibrium industry output. In addition, we incorporate an equilibrium welfare analysis. Finally, we investigate a three-stage game wherein a welfare-maximizing regulator sets a socially optimal emission cap under each policy instrument. For the latter game, while closed-form solutions for the subgame-perfect equilibrium are not possible, we establish numerically that the resulting welfare is always larger under a performance standard.

Keywords

Environmental regulation Environmental innovation End of pipe abatement Emission standard Performance standard 

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Copyright information

© Springer Science+Business Media Dordrecht 2017

Authors and Affiliations

  1. 1.Department of EconomicsUniversity of IowaIowa CityUSA
  2. 2.Department of EconomicsEl Colegio de MéxicoMexicoMexico
  3. 3.Department of Accounting, Finance, and EconomicsManchester Metropolitan UniversityManchesterUK

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