Collusion Helps Abate Environmental Pollution: A Dynamic Approach

Luca Lambertini (), Andrea Mantovani and E. Scorcu

Working Papers from Dipartimento Scienze Economiche, Universita' di Bologna

Abstract: We investigate the bearings product market collusion on the abatement of polluting emissions in a Cournot oligopoly where production entails a negative environmental externality. We model the problem as a differential game and investigate the feedback solution of two alternative settings: a fully noncooperative oligopoly and a cartel maximising the discounted profits of all firms in the industry. Our analysis proves that the output reduction entailed by collusive behaviour may have a benefiacial effect on steady state welfare, as a result of the balance between a higher market price and a lower amount of polluting emissions. This result opens a new prespective on the debate about the management of environmental externalities, which so far has mainly focussed on the design of Pigouvian taxation schemes.

Date: 2007-11
New Economics Papers: this item is included in nep-com, nep-env and nep-mic
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:bol:bodewp:615

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