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Optimal Pollution Tax in Cournot Oligopsonistic Oligopoly

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  • Koji Okuguchi
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    Abstract

    Cournot oligopoly has been studied almost exclusively under the implicit assumption of perfectly competitive factor markets. However,oligopolistic firms procure often factors of production from imperfectly competitive markets. Okuguchi(1998,2000) has analyzed Cournot oligopoly under the condition of imperfectly competitive factor markets,i.e.Cournot oligopsonistic oligopoly. Some economists have analyzed the optimal pollution tax rate which maximizes the net total social surplus for Cournot oligopoly(see Barnett(1980),Baumol and Oates(1980),Levin(1985),Okuguchi and Yamazaki(1994),Simpson(1995) and Okuguchi(2003)). A general finding is that the optimal pollution tax rate may be higher,lower or equal to the marginal value of the environmental damage. In this paper I will derive a general formula for the optimal pollution tax within Cournot oligopsonistic oligopoly where both product and factor markets are imperfectly competitive. In Section 2,I will prove that there exists a unique Cournot equilibrium for oligopsonistic oligopoly,given the level of the pollution tax rate. In Section 3,I will derive the optimal pollution tax rate capitalizing on the existence result in Section 2. I will clarify economic implications of the optimal pollution tax formula for some special cases. The final Section concludes

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    Bibliographic Info

    Paper provided by Econometric Society in its series Econometric Society 2004 Australasian Meetings with number 29.

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    Date of creation: 11 Aug 2004
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    Handle: RePEc:ecm:ausm04:29

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    Keywords: optimal pollution tax; Cournot oligopsonistic oligopoly; environmental damage;

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    Cited by:
    1. Joan Canton & Antoine Soubeyran & Hubert Stahn, 2008. "Environmental Taxation and Vertical Cournot Oligopolies: How Eco-industries Matter," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 40(3), pages 369-382, July.

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