Environmental Regulation Under Sequential Competition

47 Pages Posted: 3 Oct 2023

See all articles by Pak Sing Choi

Pak Sing Choi

National Central University

Felix Munoz-Garcia

Washington State University - School of Economic Sciences

Ana Espinola-Arredondo

Washington State University

Abstract

We examine a polluting industry, competing à la Stackelberg, where an emission fee is sequentially set on the leader and the follower. 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, which is positive when firms are asymmetric. We also measure the output inefficiency if the regulator incorrectly assumes the industry competes simultaneously, identifying in which settings this inefficiency is the largest. Our extensions allow for inflexible emission fees, asymmetric pollution intensities, several leaders and followers, product differentiation, and for the follower to hold a cost advantage.

Keywords: Sequential competition, Pollution, Cournot competition, Cost asymmetry, Output advantage, Environmental regulation, Emission fees.

Suggested Citation

Choi, Pak Sing and Munoz-Garcia, Felix and Espinola-Arredondo, Ana, Environmental Regulation Under Sequential Competition. Available at SSRN: https://ssrn.com/abstract=4590901 or http://dx.doi.org/10.2139/ssrn.4590901

Pak Sing Choi

National Central University ( email )

Jhongli, Taoyuan 32001, Taiwan.
Jhongli, 32001
Taiwan

Felix Munoz-Garcia (Contact Author)

Washington State University - School of Economic Sciences ( email )

P.O. Box 646210
Hulbert Hall 101
Pullman, WA 99164-6210
United States

HOME PAGE: http://www.ses.wsu.edu/People/munoz.htm

Ana Espinola-Arredondo

Washington State University ( email )

Wilson Rd.
College of Business
Pullman, WA 99164
United States

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