The Environmental Effects of Ambient Charges in a Partially Cooperating Duopoly

This paper examines the environmental effects of ambient charges in a Cournot duopoly with partially cooperating firms. The model assumes that firms compete in quantities while partially internalizing each other’s profit, and that the regulator can observe aggregate ambient pollution but not firm-specific emissions. We derive the Cournot equilibrium and analyze how the ambient charge affects total industrial nonpoint-source pollution. The main result shows that an increase in ambient charges reduces total pollution in this partially cooperating duopoly. This finding suggests that ambient-based regulation can remain effective even when firms partly cooperate.