Environmental Tax in a Green Market
AbstractWe examine the impact of an emission tax in a green market characterized by consumers' environmental awareness and competition between firms for both environmental quality and product prices. The unique aspect of this model comes from the assumption that the cost for an increase in quality is fixed. We show that the emission tax improves welfare, thanks to a decline in pollution and despite an accentuation of product differentiation. The higher the marginal environmental damage is, the higher the optimal tax will be. The optimal tax, however, becomes lower than the marginal damage when the market is not too large. Finally, when marginal environmental damage is not too low, the optimal tax leads to a green product monopoly.
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Bibliographic InfoArticle provided by European Association of Environmental and Resource Economists in its journal Environmental and Resource Economics.
Volume (Year): 49 (2011)
Issue (Month): 3 (July)
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Web page: http://www.springerlink.com/link.asp?id=100263
Ecological awareness; Emission tax; Environmental quality; Green market; Vertical differentiation; D62; H21; L13; Q58;
Other versions of this item:JEL classification:
- D62 - Microeconomics - - Welfare Economics - - - Externalities
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
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