Constructing a model of polluting oligopoly with product differentiation, we consider how product differentiation, together with the presence and absence of free entry, affects optimal pollution tax/subsidy policies. The sign of the short- and long-run optimal pollution taxes are highly sensitive to the parameter measuring product differentiation as well as the presence of free entry. How they are affected by a change in product differentiation, which is not addressed in the existing literature, is also made clear.
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Volume (Year): 31 (2009) Issue (Month): 3 (August) Pages: 239-247 Download reference. The following formats are available: HTML
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