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Revisiting the environmental subsidy in the presence of an eco-industry

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Author Info

  • Maia David

    (INRA)

  • Bernard Sinclair-Desgagné

    (CECO - Laboratoire d'econometrie de l'école polytechnique - CNRS : UMR7657 - Polytechnique - X)

Abstract

This paper re-considers environmental subsidies in the context where polluting firms procure their abatement goods and services from a specialized oligopoly. In order to maximize social welfare, a regulator must then simultaneously alleviate two distortions: one that comes from pollution and the other that is due to the environment firms' market power. We find that the combination of an emission tax and a subsidy to polluters cannot achieve the first-best, while the opposite positive conclusion obtains if the subsidy is granted instead to environment firms. When public transfers are themselves subject to distortions, however, welfare may be higher if only an emission tax is used.

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Bibliographic Info

Paper provided by HAL in its series Working Papers with number hal-00243054.

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Date of creation: 2007
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Handle: RePEc:hal:wpaper:hal-00243054

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Related research

Keywords: Subvention environnementale; Taxe pigouvienne; Eco-industrie;

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References

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  1. Fredriksson, Per G., 1998. "Environmental policy choice: Pollution abatement subsidies," Resource and Energy Economics, Elsevier, vol. 20(1), pages 51-63, March.
  2. Stranlund, John K., 1997. "Public Technological Aid to Support Compliance to Environmental Standards," Journal of Environmental Economics and Management, Elsevier, vol. 34(3), pages 228-239, November.
  3. Alain-Désiré Nimubona & Bernard Sinclair-Desgagné, 2005. "The Pigouvian Tax Rule in the Presence of an Eco-Industry," Working Papers hal-00243020, HAL.
  4. Conrad Klaus, 1993. "Taxes and Subsidies for Pollution-Intensive Industries as Trade Policy," Journal of Environmental Economics and Management, Elsevier, vol. 25(2), pages 121-135, September.
  5. Maia David & Bernard Sinclair-Desgagné, 2005. "Environmental Regulation and the Eco-Industry," Journal of Regulatory Economics, Springer, vol. 28(2), pages 141-155, 09.
  6. Eberhard Feess & Gerd Muehlheusser, 2002. "Strategic Environmental Policy, Clean Technologies and the Learning Curve," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 23(2), pages 149-166, October.
  7. Lerner, Abba P, 1972. "Pollution Abatement Subsidies," American Economic Review, American Economic Association, vol. 62(5), pages 1009-10, December.
  8. Fullerton Don & Mohr Robert D., 2003. "Suggested Subsidies are Sub-optimal Unless Combined with an Output Tax," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 2(1), pages 1-22, January.
  9. Mads Greaker, 2004. "Industrial Competitiveness and Diffusion of New Pollution Abatement Technology – a new look at the Porter-hypothesis," Discussion Papers 371, Research Department of Statistics Norway.
  10. Ian Parry, 1998. "A Second-Best Analysis of Environmental Subsidies," International Tax and Public Finance, Springer, vol. 5(2), pages 153-170, May.
  11. 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, vol. 40(3), pages 369-382, July.
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