Joanna Poyago-Thotoky (Department of Economics, University of St Andrews, United Kingdom)
Abstract
The paper examines the optimal environmental policy in a differentiated goods duopoly with either price- or quantity-setting firms, where firms invest in environmental R&D that reduces emissions. It is shown that in quantity (Cournot) competition, the emission tax is always lower than marginal damages. With price (Bertrand) competition, the emission tax is generally lower than marginal damages. However, for the case of very undifferentiated products, the emission tax is equal to marginal damages, that is, it approaches the first-best tax. Moreover, the Cournot emission tax is always lower than the Bertand emission tax. Concerning the R&D subsidy, the comparison crucially depends on the degree of product differentiation and the initial emissions coefficient.
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Volume (Year): 16 (2003) Issue (Month): 1 (Spring) Pages: 15-26 Download reference. The following formats are available: HTML
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Find related papers by JEL classification: Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy O38 - Economic Development, Technological Change, and Growth - - Technological Change - - - Government Policy H29 - Public Economics - - Taxation, Subsidies, and Revenue - - - Other L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
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