Effective ambient charges on non-point source pollution in a two-stage Bertrand duopoly

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ABSTRACT This paper analyses the effectiveness of the ambient charges for controlling emissions of non-point source pollutions. To this end, we construct a two-stage Bertrand duopoly game, in which optimal abatement technologies are chosen first and then the optimal prices as well as the optimal productions are determined. It is shown that the ambient charge is always effective at the second stage. Since the effect could be ambiguous at the first stage, this paper sheds light on the conditions under which the ambient charge becomes effective.