Product Variety, Scale Economies, and Environmental Taxes
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.
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Volume (Year): 9 (2009)
Issue (Month): 1 (May)
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References listed on IDEAS
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- Allanson, Paul & Montagna, Catia, 2005.
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- Buchanan, James M, 1969. "External Diseconomies, Corrective Taxes, and Market Structure," American Economic Review, American Economic Association, vol. 59(1), pages 174-177, March.
- Spulber, Daniel F., 1985. "Effluent regulation and long-run optimality," Journal of Environmental Economics and Management, Elsevier, vol. 12(2), pages 103-116, June. Full references (including those not matched with items on IDEAS)
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