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Optimal Environmental Policy under Monopolistic Provision of Clean Technologies

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  • Hattori, Keisuke

Abstract

In this paper, we characterize optimal environmental policy in a case where innovation in clean production technologies is developed and provided by a monopoly. Two policy instruments are considered: an emission tax on downstream polluting firms and an R& D subsidy for an upstream innovator in clean technologies. We find that (i) a higher emission tax may increase (decrease) R&D investment when the burden of the tax payment in the polluters' marginal costs and the price-elasticity of the demand for polluting goods are rather small (large), (ii) the social optimum can be achieved by the combined implementation of an emission tax that is smaller than an ex-ante Pigouvian rate and a subsidy that is equal to the rate of emission reduction due to the new technology, and (iii) if the policy instrument is limited to the emission tax, the second-best tax rate lies between the first-best rate and the ex-ante Pigouvian rate. We test our model by numerical simulation and demonstrate the possibility of a type of ``double dividend'' due to the emission tax. Three extensions of the model are then considered: Cournot competition in the polluting industry, a subsidy to polluters who adopt the new technology, and technology spillovers.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 28837.

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Date of creation: 30 Jan 2011
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Handle: RePEc:pra:mprapa:28837

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Keywords: Environmental Tax; R&D; Environmental Damages; Patent;

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Cited by:
  1. Haradhan Kumar Mohajan, 2011. "Optimal Environmental Taxes Due to Health Effect," KASBIT Journal of Management & Social Science, Khadim Ali Shah Bukhari Institute of Technology (KASBIT), vol. 4, pages 1-19, December.
  2. Mohajan, Haradhan, 2011. "Optimal Environmental Taxes Due to Health Effect," MPRA Paper 50672, University Library of Munich, Germany, revised 17 Apr 2011.

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