On the paradoxical case of a consumer-based environmental subsidy policy
AbstractWe apply an environmentally differentiated duopoly model to the analysis of environmental policy involving consumer subsidies based on the emission levels of the products consumers purchase. More specifically, we consider the environmental and welfare effects of subsidizing consumers who purchase environmentally friendly goods in the case of a partially covered market with a Cournot duopoly. We show that, paradoxically, the subsidy policy degrades the environment, and that the optimal policy depends on the degree of marginal social valuation of environmental damage. That is, if the marginal social valuation of environmental damage is larger than a certain value, a consumer-based environmental subsidy policy is not socially optimal.
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Bibliographic InfoArticle provided by Elsevier in its journal Economic Modelling.
Volume (Year): 27 (2010)
Issue (Month): 1 (January)
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Web page: http://www.elsevier.com/locate/inca/30411
Environmentally differentiated products Consumer-based environmental subsidy Green market Cournot duopoly;
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