Strategic Behavior and the Environment > Vol 1 > Issue 2

International Rivalry of Polluting Firms Under Flexible Regulation

Fabio Antoniou, Department of International and European Economic Studies, Athens University of Economics and Business, Greece, fantoniou@aueb.gr Panos Hatzipanayotou, Department of International and European Economic Studies, Athens University of Economics and Business, Greece, hatzip@aueb.gr
 
Suggested Citation
Fabio Antoniou and Panos Hatzipanayotou (2011), "International Rivalry of Polluting Firms Under Flexible Regulation", Strategic Behavior and the Environment: Vol. 1: No. 2, pp 151-174. http://dx.doi.org/10.1561/102.00000007

Published: 05 Apr 2011
© 2011 F. Antoniou and P. Hatzipanayotou
 
Subjects
Regulations,  Competition,  Policy
 
Keywords
F12F17F18Q53Q56
Flexible regulationStrategic environmental policyOpen economiesImperfect competitionCommitment versus flexibility
 

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In this article:
Introduction
The Model with Emission Standards Under Flexible Regulation
Emission Taxes in the Non-Strategic Case
Commitment Versus Flexibility
Concluding Remarks and Policy Implications
Appendix A
Appendix B
References

Abstract

We construct a model of strategic environmental policy with flexible regulation in an international duopoly context. Firms can affect future environmental regulation through a prior investment in abatement. We demonstrate that the strategic use of environmental policy leads to lower welfare and higher pollution. We further illustrate that when the policy instrument in use is emission standards, then pollution, profits and welfare are higher compared to the case where pollution taxes are implemented. Finally, we claim that flexibility in environmental policy is superior in terms of profits and welfare relative to a prior commitment to a certain emission standard.

DOI:10.1561/102.00000007