Strategic Environmental Policies in the Presence of Differentiated Goods

Résumé 0

We develop a theoretical model of partial equilibrium where firms, located in a country, compete and produce differentiated goods in a duopolistic market. Emission of pollution is related to production, and firms produce their output using different levels of polluting technology. To control pollution emission, the government applies discriminatory pollution quotas considering the benefits for firms, consumers, and environmental damage. The results show that if the disutility to be polluted is very high, the government imposes a zero-emission quota on the companies. But, if such disutility is not significantly high, it allows a certain amount of emissions, imposing different quotas on firms depending on the levels of technology they use to control their emissions. The proposed model stresses the importance of the rational establishment of strategic environmental policies, which benefit all economic agents in the market, firms, consumers, and the environment.