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Environmental policy and stable collusion: The case of a dynamic polluting oligopoly

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  • Benchekroun, Hassan
  • Ray Chaudhuri, Amrita

Abstract

We show that the imposition of a Markovian tax on emissions, that is, a tax rate which depends on the pollution stock, can induce stable cartelization in an oligopolistic polluting industry. This does not hold for a uniform tax. Thus, accounting for the feedback effect that exists within a dynamic framework, where pollution is allowed to accumulate into a stock over time, changes the result obtained within a static framework. Moreover, the cartel formation can diminish the welfare gain from environmental regulation such that welfare under environmental regulation and collusion of firms lies below that under a laissez-faire policy.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 35 (2011)
Issue (Month): 4 (April)
Pages: 479-490

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Handle: RePEc:eee:dyncon:v:35:y:2011:i:4:p:479-490

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Web page: http://www.elsevier.com/locate/jedc

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Keywords: Pollution tax Oligopoly Cartel formation Coalition formation Differential game;

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References

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Cited by:
  1. James E. Prieger & Nicholas J. Sanders, 2011. "Verifiable and Non-Verifiable Anonymous Mechanisms for Regulating a Polluting Monopolist," Discussion Papers 10-034, Stanford Institute for Economic Policy Research.

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