Optimal environmental taxation, R&D subsidization and the role of market conduct
AbstractThis paper examines the optimal environmental policy in a differentiated goods duopoly with either price- or quantity-setting firms, where firms invest in environmental R&D that reduces emissions. It is shown that in quantity (Cournot) competition, the emission tax is always lower than marginal damages. With price (Bertrand) competition, the emission tax is generally lower than marginal damages. However, for the case of very undifferentiate products, the emission tax is equal to marginal damages, that is it approaches the first-best tax. Moreover, the Cornot emission tax is always lower than the Bertrand emission tax. Concerning the R&D subsidy, the comparison crucially depends on the degree of product differentiation in the initial emissions coeffiecient.
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Bibliographic InfoPaper provided by Department of Economics, University of St. Andrews in its series Discussion Paper Series, Department of Economics with number 200309.
Date of creation: 15 Dec 2003
Date of revision:
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Other versions of this item:
- Joanna Poyago-Thotoky, 2003. "Optimal Environmental Taxation, R&D Subsidization and the Role of Market Conduct," Finnish Economic Papers, Finnish Economic Association, vol. 16(1), pages 15-26, Spring.
- Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
- O38 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Government Policy
- H29 - Public Economics - - Taxation, Subsidies, and Revenue - - - Other
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-07-29 (All new papers)
- NEP-INO-2003-07-29 (Innovation)
- NEP-PBE-2003-07-29 (Public Economics)
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