Managing the tragedy of commons and polluting emissions: A unified view

Abstract

We address the issue of regulating both polluting emissions through a generic tax and access to a common resource pool in a dynamic oligopoly game. Our analysis shows that once industry structure is regulated so as to induce the industry to harvest the resource in correspondence of the maximum sustainable yield, social welfare is either independent or decreasing in the tax if firms do not invest in abatement technologies, while, if they do, the policy maker may increase the tax to foster both individual and aggregate green research and development to attain abatement technologies, ideally up to the level at which emissions and the associated environmental damage are nil. This also allows us to detect the arising of the win-win solution associated to the strong form of the Porter hypothesis. We extend the analysis to encompass product differentiation and monopolistic competition, to show that qualitatively analogous conclusions obtain.