ETS and Technological Innovation: A Random Matching Model

28 Pages Posted: 10 Dec 2012

See all articles by Angelo Antoci

Angelo Antoci

University of Sassari

Simone Borghesi

University of Siena - Dept. of Political and International Sciences; European University Institute

Mauro Sodini

Dipartimento di Statistica e Matematica Applicata all’Economia, Università di Pisa

Date Written: December 10, 2012

Abstract

The present paper investigates the functioning of an Emission Trading System (ETS) and its impact on the diffusion of environmental-friendly technological innovation in the presence of firms’ strategic behaviors and sanctions to non-compliant firms. For this purpose, we study an evolutionary game model with random matching, namely, a context in which a population of firms interact through pairwise random matchings. We assume that each firm has to decide whether to adopt a new clean technology or keep on using the old technology that requires pollution permits to operate and that the strategy whose expected payoff is greater than the average payoff spreads within the population at the expense of the alternative strategy (the so-called replicator dynamics). We investigate the technological dynamics and the stationary states that emerge from the model. From the analysis of the model, we show that by properly modifying the penalty on non-compliant firms, it is possible to shift from one dynamic regime to another and that an increase in permits trade can promote the diffusion of innovative pollution-free technologies.

Keywords: emissions trading, technological innovation, random matching, evolutionary game, penalty system, strategic behavior

JEL Classification: C62, C63, C73, C78, O33, Q55, Q58

Suggested Citation

Antoci, Angelo and Borghesi, Simone and Sodini, Mauro, ETS and Technological Innovation: A Random Matching Model (December 10, 2012). FEEM Working Paper No. 79.2012, Available at SSRN: https://ssrn.com/abstract=2187222 or http://dx.doi.org/10.2139/ssrn.2187222

Angelo Antoci (Contact Author)

University of Sassari ( email )

Piazza Universita
Sassari, 07100
Italy

Simone Borghesi

University of Siena - Dept. of Political and International Sciences ( email )

via Mattioli, 10
I-53100 Siena
Italy

European University Institute ( email )

Villa Schifanoia
133 via Bocaccio
Firenze (Florence), Tuscany 50014
Italy

HOME PAGE: http://https://me.eui.eu/simone-borghesi

Mauro Sodini

Dipartimento di Statistica e Matematica Applicata all’Economia, Università di Pisa ( email )

Piazza Arbarello, 8
Turin, I-10122
Italy

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