Environmental Awareness Policy: Electric Vehicles vs Internal Combustion Engine Vehicles

In a model where firms, competing in an oligopolistic market, produce differentiated vehicles: Electric Vehicles, and Internal Combustion Engine Vehicles. The government chooses the level of environmental awareness to maximize welfare. The model is set on a two-stage game. At first, the government determines the environmental awareness level. Second, firms choose their output observing the environmental awareness level set by the government. It is found that a high perception of pollution damage encourages the setting of an environmental awareness level, encouraging the production of Electric Vehicles. Otherwise, the government is not willing to set a severe pollution policy.