Optimal Environmental Taxation, R&D Subsidization and the Role of Market Conduct
AbstractThe 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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Bibliographic InfoArticle provided by Finnish Economic Association in its journal Finnish Economic Papers.
Volume (Year): 16 (2003)
Issue (Month): 1 (Spring)
Other versions of this item:
- Joanna Poyago-Theotoky, 2003. "Optimal environmental taxation, R&D subsidization and the role of market conduct," Discussion Paper Series, Department of Economics 200309, Department of Economics, University of St. Andrews.
- 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; Research and Development; Intellectual Property Rights - - - 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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