The Incentive to Invest in Environmental-Friendly Technologies: Dynamics Makes a Difference
DYNAMIC SYSTEMS, ECONOMIC GROWTH AND THE ENVIRONMENT, Springer 2010
10 Pages Posted: 22 Jul 2009
Date Written: December 16, 2008
We model the interplay between capital accumulation for production and environmental externalities in a differential oligopoly game with Ramsey dynamics. The external effect is determined, alternatively, by sales or production. While the externality does not affect the behaviour of profit-seeking firms, it may induce a benevolent planner to shrink sales as compared to the Cournot-Nash equilibrium because of a tradeoff between consumer surplus and the externality, if the latter is driven by sales. If instead it is determined by production, there emeges that the Ramsey golden rule is no longer socially optimal.
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