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Product Variety, Scale Economies, and Environmental Taxes

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  • Vetter Henrik

    (Statsbiblioteket, hv@statsbiblioteket.dk)

Abstract

We discuss how efficiently a unit tax deals with external damage problems when economies of scale characterize a monopolistically competitive market in which consumers' value product variety. It turns out that neither the number of varieties nor the quantity of each variety is at the optimum under a unit tax. Moreover, aggregate production costs are not minimized under a unit tax. For practical policy purposes, some results suggest that a Pigouvian tax can replace a tax taking into account monopoly. Our findings make this conclusion false when the number of firms is endogenous.

Suggested Citation

  • Vetter Henrik, 2009. "Product Variety, Scale Economies, and Environmental Taxes," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 9(1), pages 1-18, May.
    • Handle: RePEc:bpj:bejtec:v:9:y:2009:i:1:n:18
    DOI: 10.2202/1935-1704.1541
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    References listed on IDEAS

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    Cited by:

    1. Wenli Cheng & Dingsheng Zhang, 2021. "Optimal Environmental Tax-Subsidy Regime in the Presence of Increasing Returns," Annals of Economics and Finance, Society for AEF, vol. 22(2), pages 525-540, November.

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