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Optimal pollution taxation in a Cournot duopoly

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  • R. Simpson
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    Abstract

    It is well known that the optimal pollution tax in a competitive industry is equal to the marginal damage inflicted by the pollution. It has also been shown that the optimal pollution tax on a monopoly is less than the marginal damage. In this paper, I derive the optimal pollution tax for a Cournot duopoly. If firms have different production costs, the optimal tax rate may exceed the marginal damage. This is so because the tax may be an effective instrument for allocating production from the less to the more efficient firm. It is also shown that, if one firm has a positive most preferred pollution tax, the sum of consumer and producer surpluses will be declining in the tax at this level. Copyright Kluwer Academic Publishers 1995

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    File URL: http://hdl.handle.net/10.1007/BF00691819
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    Bibliographic Info

    Article provided by European Association of Environmental and Resource Economists in its journal Environmental & Resource Economics.

    Volume (Year): 6 (1995)
    Issue (Month): 4 (December)
    Pages: 359-369

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    Handle: RePEc:kap:enreec:v:6:y:1995:i:4:p:359-369

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    Web page: http://www.springerlink.com/link.asp?id=100263

    Related research

    Keywords: Cournot duopoly; Pigovian tax; pollution;

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    1. Spulber, Daniel F., 1988. "Optimal environmental regulation under asymmetric information," Journal of Public Economics, Elsevier, vol. 35(2), pages 163-181, March.
    2. In-Koo Cho & David M. Kreps, 1997. "Signaling Games and Stable Equilibria," Levine's Working Paper Archive 896, David K. Levine.
    3. Kohn Robert E., 1994. "Do We Need the Entry-Exit Condition on Polluting Firms?," Journal of Environmental Economics and Management, Elsevier, vol. 27(1), pages 92-97, July.
    4. Carlton, Dennis W & Loury, Glenn C, 1986. "The Limitation of Pigouvian Taxes as a Long-run Remedy for Externalities: An Extension of Results," The Quarterly Journal of Economics, MIT Press, vol. 101(3), pages 631-34, August.
    5. Buchanan, James M, 1969. "External Diseconomies, Corrective Taxes, and Market Structure," American Economic Review, American Economic Association, vol. 59(1), pages 174-77, March.
    6. Carlton, Dennis W & Loury, Glenn C, 1980. "The Limitations of Pigouvian Taxes as a Long-Run Remedy for Externalities," The Quarterly Journal of Economics, MIT Press, vol. 95(3), pages 559-66, November.
    7. Maloney, Michael T & McCormick, Robert E, 1982. "A Positive Theory of Environmental Quality Regulation," Journal of Law and Economics, University of Chicago Press, vol. 25(1), pages 99-123, April.
    8. Barnett, A H, 1980. "The Pigouvian Tax Rule under Monopoly," American Economic Review, American Economic Association, vol. 70(5), pages 1037-41, December.
    9. Bulow, Jeremy I & Geanakoplos, John D & Klemperer, Paul D, 1985. "Multimarket Oligopoly: Strategic Substitutes and Complements," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 488-511, June.
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