Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/159579
Authors: 
Dragone, Davide
Lambertini, Luca
Palestini, Arsen
Year of Publication: 
2011
Series/Report no.: 
Quaderni - Working Paper DSE 738
Abstract: 
We investigate the possibility of using public firms to regulate polluting emissions in a Cournot oligopoly where production takes place at constant returns to scale and entails a negative environmental externality. We model the problem as a differential game and investigate (i) the Cournot-Nash game among profit-seeking firms; (ii) the Markov Perfect Nash equilibrium under social planning, where the industry output is entirely controlled by a benevolent planner aiming at the maximisation of social welfare; and (iii) the Markov Perfect Nash equilibrium in a mixed setup where at least one firm is public, while the others remain profit-seeking agents. Our analysis identifies the conditions whereby having a mixed market as a regulatory instrument suffices to drive the industry to the same output, externality and social welfare as under planning, both along the optimal path and in steady state.
JEL: 
C73
D43
D62
L13
L32
Q50
Persistent Identifier of the first edition: 
Creative Commons License: 
https://creativecommons.org/licenses/by-nc/3.0/
Document Type: 
Working Paper

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