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Being green first: Simultaneous vs. sequential abatement decisions

Author

Listed:
  • Strandholm, John C.
  • Espinola-Arredondo, Ana
  • Munoz-Garcia, Felix

Abstract

We investigate the effect of the timing of green technology investment in a polluting duopoly facing environmental regulation. We consider a three-stage game where (i) firms sequentially choose their investment in the first stage, (ii) the regulator sets the optimal emission fee in the second stage, and (iii) the polluting good is produced in the third stage. When free-riding incentives are strong the leader enjoys a first-mover advantage, investing less in abatement than the follower, as in sequential public good games. We also show that sequential investment decisions achieve higher abatement than simultaneous decisions, and identify in which settings such a difference is the largest.

Suggested Citation

  • Strandholm, John C. & Espinola-Arredondo, Ana & Munoz-Garcia, Felix, 2023. "Being green first: Simultaneous vs. sequential abatement decisions," Economics Letters, Elsevier, vol. 227(C).
    • Handle: RePEc:eee:ecolet:v:227:y:2023:i:c:s0165176523001489
    DOI: 10.1016/j.econlet.2023.111123
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    More about this item

    Keywords

    Green technology; Sequential investment; Abatement; Emission fees; Free-riding incentives;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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