IDEAS home Printed from https://ideas.repec.org/p/bol/bodewp/681.html
   My bibliography  Save this paper

A Stochastic Optimal Control Model of Pollution Abatement

Author

Listed:
  • D. Dragone
  • L. Lambertini
  • G. Leitmann
  • A. Palestini

Abstract

We model a dynamic monopoly with environmental externalities,investigating the adoption of a tax levied on the firm's instantaneous contribution to the accumulation of pollution. The latter process is subject to a shock, which is i.i.d. across instants. We prove the existence of an optimal tax rate such that the monopoly replicates the same steady state welfare level as under social planning. Yet, the corresponding output level, R&D investment for environmental friendly technologies and surplus distribution necessarily differ from the socially optimal ones.

Suggested Citation

  • D. Dragone & L. Lambertini & G. Leitmann & A. Palestini, 2009. "A Stochastic Optimal Control Model of Pollution Abatement," Working Papers 681, Dipartimento Scienze Economiche, Universita' di Bologna.
    • Handle: RePEc:bol:bodewp:681
    as

    Download full text from publisher

    File URL: http://amsacta.unibo.it/4563/1/681.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Luca Lambertini, 2005. "Stackelberg leadership in a dynamic duopoly with stochastic capital accumulation," Journal of Evolutionary Economics, Springer, vol. 15(4), pages 443-465, October.
    2. Benchekroun, Hassan & Van Long, Ngo, 2002. "On the multiplicity of efficiency-inducing tax rules," Economics Letters, Elsevier, vol. 76(3), pages 331-336, August.
    3. Davide Dragone & Luca Lambertini & Arsen Palestini, 2013. "The Incentive to Invest in Environmental-Friendly Technologies: Dynamics Makes a Difference," Dynamic Modeling and Econometrics in Economics and Finance, in: Jesús Crespo Cuaresma & Tapio Palokangas & Alexander Tarasyev (ed.), Green Growth and Sustainable Development, edition 127, pages 165-188, Springer.
    4. Stern,Nicholas, 2007. "The Economics of Climate Change," Cambridge Books, Cambridge University Press, number 9780521700801, January.
    5. Karp Larry & Livernois John, 1994. "Using Automatic Tax Changes to Control Pollution Emissions," Journal of Environmental Economics and Management, Elsevier, vol. 27(1), pages 38-48, July.
    6. Luca Lambertini, 2006. "Process R&D in Monopoly under Demand Uncertainty," Economics Bulletin, AccessEcon, vol. 15(14), pages 1-9.
    7. Benchekroun, Hassan & van Long, Ngo, 1998. "Efficiency inducing taxation for polluting oligopolists," Journal of Public Economics, Elsevier, vol. 70(2), pages 325-342, November.
    8. Paul Klemperer & Margaret Meyer, 1986. "Price Competition vs. Quantity Competition: The Role of Uncertainty," RAND Journal of Economics, The RAND Corporation, vol. 17(4), pages 618-638, Winter.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Li, Shoude, 2014. "Dynamic optimal control of pollution abatement under emissions permit banking," Economic Modelling, Elsevier, vol. 36(C), pages 363-369.
    2. Mehdi Fadaee & Luca Lambertini, 2015. "Non-tradeable pollution permits as green R&D incentives," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 17(1), pages 27-42, January.
    3. M. Fadaee, 2011. "A Dynamic Approach to the Environmental Effects of Trade Liberalization," Working Papers wp746, Dipartimento Scienze Economiche, Universita' di Bologna.
    4. M. Fadaee & L. Lambertini, 2011. "Using Auctions for Pollution Rights as Indirect Incentives for Investments in Green Technologies," Working Papers wp729, Dipartimento Scienze Economiche, Universita' di Bologna.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Luca Lambertini & George Leitmann, 2013. "Market Power, Resource Extraction and Pollution: Some Paradoxes and a Unified View," Dynamic Modeling and Econometrics in Economics and Finance, in: Jesús Crespo Cuaresma & Tapio Palokangas & Alexander Tarasyev (ed.), Green Growth and Sustainable Development, edition 127, pages 143-164, Springer.
    2. Dragone, Davide & Lambertini, Luca & Palestini, Arsen, 2022. "Emission taxation, green innovations and inverted-U aggregate R&D efforts in a linear state differential game," Research in Economics, Elsevier, vol. 76(1), pages 62-68.
    3. L. Lambertini, 2014. "On the Interplay between Resource Extraction and Polluting Emissions in Oligopoly," Working Papers wp976, Dipartimento Scienze Economiche, Universita' di Bologna.
    4. M. Fadaee, 2011. "A Dynamic Approach to the Environmental Effects of Trade Liberalization," Working Papers wp746, Dipartimento Scienze Economiche, Universita' di Bologna.
    5. Andrea Mantovani & Ornella Tarola & Cecilia Vergari, 2014. "Hedonic quality, social norms, and environmental campaigns," Working Papers 2014/36, Institut d'Economia de Barcelona (IEB).
    6. Li, Shoude & Zhang, Yingxuan, 2023. "Abatement technology innovation and pollution tax design: A dynamic analysis in monopoly," Energy Economics, Elsevier, vol. 119(C).
    7. Mehdi Fadaee & Luca Lambertini, 2015. "Non-tradeable pollution permits as green R&D incentives," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 17(1), pages 27-42, January.
    8. Lambertini, Luca & Tampieri, Alessandro, 2015. "Incentives, performance and desirability of socially responsible firms in a Cournot oligopoly," Economic Modelling, Elsevier, vol. 50(C), pages 40-48.
    9. Davide Dragone & Luca Lambertini & Arsen Palestini, 2013. "The Incentive to Invest in Environmental-Friendly Technologies: Dynamics Makes a Difference," Dynamic Modeling and Econometrics in Economics and Finance, in: Jesús Crespo Cuaresma & Tapio Palokangas & Alexander Tarasyev (ed.), Green Growth and Sustainable Development, edition 127, pages 165-188, Springer.
    10. Dragone, Davide & Lambertini, Luca & Palestini, Arsen, 2014. "Regulating Environmental Externalities through Public Firms: A Differential Game," Strategic Behavior and the Environment, now publishers, vol. 4(1), pages 15-40, April.
    11. D. Dragone & L. Lambertini & A. Palestini, 2009. "On the non-neutrality of profit taxation in a Cournot oligopoly with environmental effects," Working Papers 662, Dipartimento Scienze Economiche, Universita' di Bologna.
    12. M. Fadaee & L. Lambertini, 2011. "Using Auctions for Pollution Rights as Indirect Incentives for Investments in Green Technologies," Working Papers wp729, Dipartimento Scienze Economiche, Universita' di Bologna.
    13. L. Lambertini & A. Mantovani & E. Scorcu, 2007. "Collusion Helps Abate Environmental Pollution: A Dynamic Approach," Working Papers 615, Dipartimento Scienze Economiche, Universita' di Bologna.
    14. Andrea Mantovani & Ornella Tarola & Cecilia Vergari, 2014. "Hedonic quality, social norms, and environmental campaigns," Working Papers 2014/36, Institut d'Economia de Barcelona (IEB).
    15. Dragone Davide & Lambertini Luca & Palestini Arsen & Tampieri Alessandro, 2013. "On the Optimal Number of Firms in the Commons: Cournot vs Bertrand," Mathematical Economics Letters, De Gruyter, vol. 1(1), pages 25-34, October.
    16. repec:ebl:ecbull:v:17:y:2008:i:13:p:1-11 is not listed on IDEAS
    17. D. Dragone & L. Lambertini & A. Palestini, 2017. "Emission taxation, green innovations and inverted-U aggregate R&D efforts in a linear state oligopoly game," Working Papers wp2000, Dipartimento Scienze Economiche, Universita' di Bologna.
    18. Aznar-Márquez, J. & Ruiz-Tamarit, J.R., 2017. "Sustainable growth and environmental catastrophes," Mathematical Social Sciences, Elsevier, vol. 89(C), pages 83-91.
    19. Denis Claude & Mabel Tidball, 2010. "Efficiency inducing taxation for polluting oligopolists: the irrelevance of privatization," Economics Bulletin, AccessEcon, vol. 30(4), pages 2946-2954.
    20. Luca Lambertini & Alessandro Tampieri, 2012. "Corporate Social Responsibility and Firms’ Ability to Collude," Palgrave Macmillan Books, in: Sabri Boubaker & Duc Khuong Nguyen (ed.), Board Directors and Corporate Social Responsibility, chapter 9, pages 167-178, Palgrave Macmillan.
    21. Julien Daubanes, 2008. "Fossil fuels supplied by oligopolies: On optimal taxation and rent capture," Economics Bulletin, AccessEcon, vol. 17(13), pages 1-11.

    More about this item

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bol:bodewp:681. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Dipartimento Scienze Economiche, Universita' di Bologna (email available below). General contact details of provider: https://edirc.repec.org/data/sebolit.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.