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We analyse the steady-state industry configuration of an oligopoly composed of profit-seeking (PS) and environmentally socially responsible (ECSR) firms in an evolutionary setting. In the industry, pollution is regulated through an Emission Trading System (ETS) scheme that allocates emissions' rights to firms. Firms may also invest in emission abatement technology to reduce the cost of emission rights. Our main findings show that, despite the commitment toward emission abatement, an individual ECSR firm may pollute more than its PS counterpart. By contrast, the introduction of the ETS puts competitive pressure to ECSR firms by inducing PS firms to invest in emission abatement.
(with Gianluca Iannucci)