Green Goodwill and Carbon Emission Abatement in a Monopolistic Market : A Dynamic Game Approach

Li, Xiaoliang and Sun, Shuie and Cheng, Yuhao and Zhang, Ally Quan (2026) Green Goodwill and Carbon Emission Abatement in a Monopolistic Market : A Dynamic Game Approach. Finance Research Letters. ISSN 1544-6123 (In Press)

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Abstract

This paper examines how carbon taxation, green awareness, and abatement technology jointly affect emissions and market stability in a monopolistic setting. We develop a dynamic model in which a bounded-rational firm builds green goodwill in response to environmentally conscious consumers. The analysis uncovers a counter-intuitive, market-size-dependent effect: awareness and technology reduce total emissions only when the market is sufficiently large, while in smaller markets they may increase emissions by expanding output. Carbon taxation, by contrast, consistently lowers emissions. Welfare analysis shows that awareness and technology enhance surplus, whereas excessive taxation can reduce welfare. The stability analysis further indicates that while a higher carbon tax rate tends to enhance market stability, excessively strong environmental awareness or overly low abatement costs may instead lead to instability. These findings highlight that effective climate policy must balance awareness, taxation, and technology according to market scale.