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The Adverse Effects of Environmental Policy in Green Markets

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Author Info

  • J. L. Moraga-González

    (Tinbergen Institute, Rotterdam)

  • Noemi Padrón-Fumero

    (University Pompeu Fabra)

Abstract

We model green markets in which purchasers, either firms or consumers, have higher willingness-to-pay for less polluting goods. The effectiveness of pollution reduction policies is examined in a duopoly setting. We show that duopolists´ strategic behaviour may increase pollution levels. Maximum emission standards, commonly used in green markets, improve the environmental features of products. Nonetheless, overall pollution levels will rise because government regulation also affects market shares and boosts firms´ sales. Consequently, social welfare may be reduced. We also explore the effects of technological subsidies and product charges, including differentiation of charges.

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File URL: http://www.econ.ku.dk/cie/dp/dp_1997-1999/1998-11.pdf/
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Bibliographic Info

Paper provided by University of Copenhagen. Department of Economics. Centre for Industrial Economics in its series CIE Discussion Papers with number 1998-11.

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Length: 11 pages
Date of creation: Sep 1998
Date of revision:
Handle: RePEc:kud:kuieci:1998-11

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Keywords: emission standards; subsidies; product charges; vertically differentiated duopoly;

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