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Market Power, Resource Extraction and Pollution: Some Paradoxes and a Unified View

Quaderni DSE Working Paper No. 798

25 Pages Posted: 29 Nov 2011  

Luca Lambertini

University of Bologna - Department of Economics

George Leitmann

University of California, Berkeley - College of Engineering

Date Written: November 29, 2011

Abstract

We adopt a stepwise approach to the analysis of a dynamic oligopoly game in which production makes use of a natural resource and pollutes the environment, starting with simple models where Â…firms' output is not a function of the natural resource to end up with a full-fledged model in which (i) the resource is explicitly considered as an input of production and (ii) the natural resource and pollution interact via the respective state equations. This allows us to show that the relationship between the welfare properties of the economic system and the intensity of competition is sensitive to the degree of accuracy with which the model is constructed.

Keywords: environmental externality, resource extraction, oligopoly, Pigouvian taxation, R&D

JEL Classification: C73, H23, L13, O31, Q2, Q3

Suggested Citation

Lambertini, Luca and Leitmann, George, Market Power, Resource Extraction and Pollution: Some Paradoxes and a Unified View (November 29, 2011). Quaderni DSE Working Paper No. 798. Available at SSRN: https://ssrn.com/abstract=1965997 or http://dx.doi.org/10.2139/ssrn.1965997

Luca Lambertini (Contact Author)

University of Bologna - Department of Economics ( email )

Strada Maggiore 45
Bologna, 40125
Italy
+39 051 2092600 (Phone)
+39 051 2092664 (Fax)

George Leitmann

University of California, Berkeley - College of Engineering ( email )

Berkeley, CA 94720-1712
United States

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