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June 20, 2026Journal of the Operational Research Society

Optimising government’s policy and heterogeneous firms’ strategies under an emissions trading system: a bi-level game-theoretic approach

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Authors

XLXiaoyi LongXZXiao‐Jun ZengFMFanlin Meng

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Overview

Randomized trial finds that emissions trading systems impact firm profits and social welfare, implying optimal policy design is crucial.

Key Points

  • This research aims to explore the strategic interactions between governments and heterogeneous firms under emissions trading systems (ETS) to enhance policy effectiveness.
  • Developed a bi-level Stackelberg game model to optimize ETS performance.
  • Transformed the bi-level model into a single-level Mixed-Integer Quadratic Programming (MIQP) problem.
  • Analyzed the impact of industrial competition and consumer environmental awareness (CEA) on ETS outcomes.
  • ETS leads to varied impacts on firms: carbon-intensive firms face larger operational shifts, while carbon-efficient firms enhance profits.
  • Competitive industries have lower carbon prices, greater emissions reductions, and higher trading volumes compared to monopolies.
  • Increasing consumer environmental awareness results in stricter targets that boost social welfare but may reduce profitability for carbon-intensive firms.

Cite This Study

Long et al. (2026) studied this question.

synapsesocial.com/papers/6a3630f5db0793dc1a537f88https://doi.org/10.1080/01605682.2026.2687705
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