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Environmental policy and stable collusion: The case of a dynamic polluting oligopoly

  • Benchekroun, Hassan
  • Ray Chaudhuri, Amrita

We show that the imposition of a Markovian tax on emissions, that is, a tax rate which depends on the pollution stock, can induce stable cartelization in an oligopolistic polluting industry. This does not hold for a uniform tax. Thus, accounting for the feedback effect that exists within a dynamic framework, where pollution is allowed to accumulate into a stock over time, changes the result obtained within a static framework. Moreover, the cartel formation can diminish the welfare gain from environmental regulation such that welfare under environmental regulation and collusion of firms lies below that under a laissez-faire policy.

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Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 35 (2011)
Issue (Month): 4 (April)
Pages: 479-490

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Handle: RePEc:eee:dyncon:v:35:y:2011:i:4:p:479-490
Contact details of provider: Web page: http://www.elsevier.com/locate/jedc

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