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Regulating a Polluting Oligopoly: Emission Tax or Voluntary Agreement?

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  • Maia David

Abstract

This paper compares, in a polluting oligopoly, an emission tax and a form of environmental policy called voluntary agreement (VA). Here there are two ways of reducing pollution: output contraction and end-of-pipe abatement. Given the imperfect competition, firms' reaction to the tax is sub-optimal. They reduce output excessively in order to raise the price and do not abate enough. The VA is a take-it-or-leave-it contract on abatement effort, offered to the firms with the threat of a tax. It has a limited effect on output and always allows higher abatement than the tax. We find that this kind of VA may be more efficient than the tax in a concentrated industry, when pollution is not too harmful and when the abatement technology is rather efficient and cheap. Copyright Blackwell Publishing Ltd 2005.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Review of Development Economics.

Volume (Year): 9 (2005)
Issue (Month): 4 (November)
Pages: 514-529

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Handle: RePEc:bla:rdevec:v:9:y:2005:i:4:p:514-529

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  1. Barnett, A H, 1980. "The Pigouvian Tax Rule under Monopoly," American Economic Review, American Economic Association, vol. 70(5), pages 1037-41, December.
  2. Kort, P.M. & Farzin, Y.H., 2000. "Pollution abatement investment when environmental regulation is uncertain," Open Access publications from Tilburg University urn:nbn:nl:ui:12-84064, Tilburg University.
  3. Anna Alberini & Kathleen Segerson, 2002. "Assessing Voluntary Programs to Improve Environmental Quality," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 22(1), pages 157-184, June.
  4. Buchanan, James M, 1969. "External Diseconomies, Corrective Taxes, and Market Structure," American Economic Review, American Economic Association, vol. 59(1), pages 174-77, March.
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Cited by:
  1. Ouchida, Yasunori & Goto, Daisaku, 2014. "Do emission subsidies reduce emission? In the context of environmental R&D organization," Economic Modelling, Elsevier, vol. 36(C), pages 511-516.

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