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The Timing of Environmental Policy: A Note on the Role of Product Differentiation

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  • Poyago-Theotoky, Joanna
  • Teerasuwannajak, Khemarat

Abstract

We examine the role that product differentiation can play in the design of environmental policy under full commitment and no commitment on the part of the environmental regulator. We consider a setting with two firms selling a differentiated product which generates pollution through emissions. Firms can reduce their emissions by undertaking abatement activities while an environmental regulator taxes emissions. The main results are: (1) When products are highly differentiated, the optimal time-consistent (no commitment) tax is always lower than the optimal pre-commitment tax. As the degree of product differentiation decreases, for relatively efficient abatement technology and high damages, the time-consistent emission tax exceeds the optimal pre-commitment one. (2) Abatement when product differentiation is extensive is higher under the time-consistent regime unless the abatement technology is extremely efficient. The same ranking applies to social welfare. However, as products become more and more similar, these results are (partially) reversed and pre-commitment could lead to both higher levels of abatement and welfare. Copyright 2002 by Kluwer Academic Publishers

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Bibliographic Info

Article provided by Springer in its journal Journal of Regulatory Economics.

Volume (Year): 21 (2002)
Issue (Month): 3 (May)
Pages: 305-16

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Handle: RePEc:kap:regeco:v:21:y:2002:i:3:p:305-16

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Web page: http://www.springerlink.com/link.asp?id=100298

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Cited by:
  1. Brécard, Dorothée & Hlaimi, Boubaker & Lucas, Sterenn & Perraudeau, Yves & Salladarré, Frédéric, 2009. "Determinants of demand for green products: An application to eco-label demand for fish in Europe," Ecological Economics, Elsevier, vol. 69(1), pages 115-125, November.
  2. de, Vries Frans & Schoonbeek, Lambert, 2008. "Environmental Taxes and Industry Monopolization," Stirling Economics Discussion Papers 2008-19, University of Stirling, Division of Economics.
  3. Dorothée Brécard, 2013. "Environmental Quality Competition and Taxation in the Presence of Green Network Effect Among Consumers," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 54(1), pages 1-19, January.
  4. 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.
  5. Dorothée Brécard, 2011. "Environmental Tax in a Green Market," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 49(3), pages 387-403, July.
  6. Luis Gautier, 2013. "Multilateral and unilateral policy reform of emission taxes and abatement subsidies in a two-country model with oligopolistic interdependence," Environmental Economics and Policy Studies, Society for Environmental Economics and Policy Studies - SEEPS, vol. 15(1), pages 59-71, January.
  7. Yasunori Ouchida & Daisaku Goto, 2014. "Cournot duopoly and environmental R&D under regulator’s precommitment to an emissions tax," IDEC DP2 Series 4-3, Hiroshima University, Graduate School for International Development and Cooperation (IDEC).
  8. Yasunori Ouchida & Daisaku Goto, 2012. "What is the socially desirable formation of environmental R&D?," IDEC DP2 Series 2-6, Hiroshima University, Graduate School for International Development and Cooperation (IDEC).
  9. Ouchida, Yasunori & Goto, Daisaku, 2014. "Do emission subsidies reduce emission? In the context of environmental R&D organization," Economic Modelling, Elsevier, vol. 36(C), pages 511-516.

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