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Environmental regulation under sequential competition

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  • Choi, Pak-Sing
  • Espinola-Arredondo, Ana
  • Munoz-Garcia, Felix

Abstract

We examine a polluting industry, competing à la Stackelberg, facing emission fees. We evaluate the leader's output advantage, disentangling two effects: the first-mover and cost advantage. We show that environmental regulation decreases the leader's output advantage; a reduction that is emphasized when pollution is more severe, but ameliorated by the leader's cost efficiency. We also measure the fee and welfare inefficiency arising if the regulator incorrectly assumes that the industry competes simultaneously, identifying in which settings this inefficiency is the largest. Our extensions consider investment in abatement, several leaders and followers, firm-specific emission fees, differentiated products, and a follower's cost advantage.

Suggested Citation

  • Choi, Pak-Sing & Espinola-Arredondo, Ana & Munoz-Garcia, Felix, 2024. "Environmental regulation under sequential competition," Journal of Economic Behavior & Organization, Elsevier, vol. 221(C), pages 52-72.
    • Handle: RePEc:eee:jeborg:v:221:y:2024:i:c:p:52-72
    DOI: 10.1016/j.jebo.2024.03.014
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    Cited by:

    1. Xiaohuan Li & Chenggang Wang & Dongrong Li & Dongxue Yang & Fan Meng & Yuan Huang, 2024. "Environmental Regulations, Green Marketing, and Consumers’ Green Product Purchasing Intention: Evidence from China," Sustainability, MDPI, vol. 16(20), pages 1-24, October.

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    More about this item

    Keywords

    Stackelberg competition; Pollution; Cournot competition; Cost asymmetry; Output advantage; Environmental regulation; Emission fees;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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