On the evolutionary interplay between environmental CSR and emission tax

Abstract

This paper analyses the steady-state industry configuration of an oligopoly composed of profit-seeking (PS) and environmentally socially responsible (ECSR) firms in an evolutionary setting. Within this industry, an emission tax is levied, and firms may invest in emission abatement technology to reduce the tax burden. Our main findings show that, despite the commitment towards emission abatement, an ECSR firm may end up polluting more than its PS counterpart, leading to ill-fated effects on the environment. In contrast, the introduction of an emission tax puts competitive pressure to ECSR firms by inducing PS firms to invest in emission abatement. The industry configuration that minimises the environmental damage (and maximises social welfare) is mixed, with a small but relevant share of ECSR firms, combined with the adoption of a tax on emissions.