The Impact of Environmental Taxes on Firms' Technology and Entry Decisions
AbstractThis paper investigates under which conditions a regulator can strate- gically set an emission fee as a tool to induce a domestic firm to adopt a non-polluting technology and deter entry. We consider a market in which a monopolistic incumbent faces the threat of entry from firms that can choose between a dirty and a green technology. Our results show that, despite the fact of facing a polluting incumbent, an entrant might find it profitable to acquire a clean technology if the environmental tax is strin- gent enough. In addition, we demonstrate that an incumbent that adopts a clean technology is more likely to deter entry than an incumbent that keeps its dirty technology. Finally, we also show that a non-polluting duopoly market, in which all firms acquire clean technology, is socially preferred to a non-polluting monopoly market if the green technology cost is sufficiently low. However, if the clean technology becomes more expensive it may be socially optimal to have a polluting duopoly market in which only one firm adopts the green technology.
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Bibliographic InfoPaper provided by School of Economic Sciences, Washington State University in its series Working Papers with number 2013-2.
Length: 24 pages
Date of creation: Jan 2013
Date of revision:
Technology Adoption; Market Structure; Emission Tax;
Find related papers by JEL classification:
- H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
- L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
- Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-03-16 (All new papers)
- NEP-COM-2013-03-16 (Industrial Competition)
- NEP-ENE-2013-03-16 (Energy Economics)
- NEP-ENV-2013-03-16 (Environmental Economics)
- NEP-REG-2013-03-16 (Regulation)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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- Espínola-Arredondo, Ana & Muñoz-García, Félix, 2013. "When does environmental regulation facilitate entry-deterring practices," Journal of Environmental Economics and Management, Elsevier, vol. 65(1), pages 133-152.
- Fischer, Carolyn & Parry, Ian W. H. & Pizer, William A., 2003.
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Elsevier, vol. 45(3), pages 523-545, May.
- Parry, Ian & Pizer, William & Fischer, Carolyn, 1998. "Instrument Choice for Environmental Protection When Technological Innovation is Endogenous," Discussion Papers dp-99-04, Resources For the Future.
- David Popp, 2002. "Induced Innovation and Energy Prices," American Economic Review, American Economic Association, vol. 92(1), pages 160-180, March.
- Buchanan, James M & Tullock, Gordon, 1975. "Polluters' Profits and Political Response: Direct Controls Versus Taxes," American Economic Review, American Economic Association, vol. 65(1), pages 139-47, March.
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