Efficiency inducing taxation for polluting oligopolists
AbstractWe derive corrective tax rules when firms are oligopolists whose production processes generate emissions that add to a stock of pollution that accumulates over time. In our model, firms play dynamic Cournot games among themselves, and the government designs a tax rule that corrects for both the externality associated with emissions and the market power of oligopolists. We show that there exists a time-independent tax rule that guides the oligopolists to achieve the socially optimum production path. The optimal tax per unit of output is dependent on the current level of pollution stock, and it may be negative (implying a subsidy) when the pollution stock is low. We obtain a rather surprising result: in some cases, the optimal tax rule gives firms a subsidy for an initial time interval even though under laissez-faire their output exceeds the socially optimal output at each point of time. This subsidy, howerver, induces firms to produce less than they would under laissez-faire, because they know that if they produce more then the subsidy will be reduced in the future and/or will soon turn into a tax. RÃ¨gle de taxation permettant de rÃ©aliser l'optimalitÃ© pour un oligopole polluant. On considÃ¨re une industrie oligopolistique dans laquelle la production s'accompagne d'Ã©missions de pollution qui s'accumule pour former un stock. Dans ce modÃ¨le, les firment se livrent une concurrence Ã la Cournot. Le gouvernement propose une rÃ¨gle de taxation pour corriger Ã la fois l'effet de la concurrence imparfaite et l'externalitÃ© nÃ©gative due aux Ã©missions de pollution. On montre qu'il existe une rÃ¨gle de taxation qui ne dÃ©pend pas explicitement du temps et qui amÃ¨ne les firmes Ã choisir le sentier de production socialement optimal. Le taux optimal de taxation d'unitÃ© de production dÃ©pend du niveau du stock de pollution et peut Ãªtre nÃ©gatif (une subvention) pour des niveaux faibles de stock de pollution. On obtient un rÃ©sultat qui peut sembler surprenant Ã premiÃ¨
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Public Economics.
Volume (Year): 70 (1998)
Issue (Month): 2 (November)
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Web page: http://www.elsevier.com/locate/inca/505578
Other versions of this item:
- Hassan Benchekroun & Ngo Van Long, 1997. "Efficiency Inducing Taxation for Polluting Oligopolists," CIRANO Working Papers 97s-21, CIRANO.
- H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
- Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
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