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The Design of Voluntary Agreements in Oligopolistic Markets

Brau, Rinaldo - Carraro, Carlo (2009) The Design of Voluntary Agreements in Oligopolistic Markets. Working Paper. Springer.

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Abstract

This paper analyses the conditions under which a group of firms is incentivised to sign a voluntary agreement (VA) to control polluting emissions even in the presence of free-riding by other firms in the industry. We consider a policy framework in which firms in a given industry decide whether or not to sign a VA proposed by an environmental regulator. We identify the features that a VA should possess in order to incentivize firms to participate in the VA and to enhance its economic and environmental effectiveness. Under very general conditions on the shape of the demand schedule, we obtain the following results. First, a VA does not belong to the equilibrium of the coalition game when benefits from voluntary emission abatement are a pure public good. Second, in the presence of partial spillovers – i.e. when signatories obtain more benefits from the VA than non-signatories – a VA belongs to the equilibrium only if a minimum participation rule is guaranteed. Third, a VA with a minimum participation rule and a minimum mandatory emission abatement may improve welfare (and even industry profits) compared to a VA in which firms are free to set their own profit maximising abatement level.

Item Type:Technical Report / Working Paper / Project Report (Working Paper)
Corporate Creators:Università di Cagliari and CRENoS, Università di Venezia and FEEM
Publisher:Springer
Date:2009
Institution:Universita' degli Studi di Cagliari
Divisions:Centri > CRENoS Centro Ricerche Economiche Nord Sud
Subjects:Area 13 - Scienze economiche e statistiche > SECS-P/02 Politica economica
Area 13 - Scienze economiche e statistiche > SECS-P/01 Economia politica
Area 13 - Scienze economiche e statistiche > SECS-P/03 Scienza delle finanze
Uncontrolled Keywords:Voluntary agreement; voluntary approaches; new policy instruments; environmental regulation; coalition structures; emission standards
ID Code:800
Deposited On:25 Jul 2012 16:53
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