Being green first: Simultaneous vs. sequential abatement decisions

We investigate the effect of the timing of green technology investment in a polluting duopoly facing environmental regulation. We consider a three-stage game where (i) firms sequentially choose their investment in the first stage, (ii) the regulator sets the optimal emission fee in the second stage, and (iii) the polluting good is produced in the third stage. When free-riding incentives are strong the leader enjoys a first-mover advantage, investing less in abatement than the follower, as in sequential public good games. We also show that sequential investment decisions achieve higher abatement than simultaneous decisions, and identify in which settings such a difference is the largest.Published by Elsevier B.V.

Automated summary

This study investigates the impact of the timing of green technology investment in a polluted duopoly with environmental regulation. A three-stage game is considered, where firms sequentially choose their investment, the regulator sets the optimal emission fee, and the polluting good is produced. Results show that when free-riding incentives are strong, the leader enjoys a first-mover advantage by investing less in abatement compared to the follower, similar to sequential public good games. It is also found that sequential investment decisions result in higher abatement than simultaneous decisions, with variations based on environmental settings.