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Efficiency inducing taxation for polluting oligopolists

  • Benchekroun, Hassan
  • van Long, Ngo

We derive corrective tax rules when firms are oligopolists whose production processes generate emissions that add to a stock of pollution that accumulates over time. In our model, firms play dynamic Cournot games among themselves, and the government designs a tax rule that corrects for both the externality associated with emissions and the market power of oligopolists. We show that there exists a time-independent tax rule that guides the oligopolists to achieve the socially optimum production path. The optimal tax per unit of output is dependent on the current level of pollution stock, and it may be negative (implying a subsidy) when the pollution stock is low. We obtain a rather surprising result: in some cases, the optimal tax rule gives firms a subsidy for an initial time interval even though under laissez-faire their output exceeds the socially optimal output at each point of time. This subsidy, howerver, induces firms to produce less than they would under laissez-faire, because they know that if they produce more then the subsidy will be reduced in the future and/or will soon turn into a tax. Règle de taxation permettant de réaliser l'optimalité pour un oligopole polluant. On considère une industrie oligopolistique dans laquelle la production s'accompagne d'émissions de pollution qui s'accumule pour former un stock. Dans ce modèle, les firment se livrent une concurrence à la Cournot. Le gouvernement propose une règle de taxation pour corriger à la fois l'effet de la concurrence imparfaite et l'externalité négative due aux émissions de pollution. On montre qu'il existe une règle de taxation qui ne dépend pas explicitement du temps et qui amène les firmes à choisir le sentier de production socialement optimal. Le taux optimal de taxation d'unité de production dépend du niveau du stock de pollution et peut être négatif (une subvention) pour des niveaux faibles de stock de pollution. On obtient un résultat qui peut sembler surprenant à première vue : il peut être o

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Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 70 (1998)
Issue (Month): 2 (November)
Pages: 325-342

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Handle: RePEc:eee:pubeco:v:70:y:1998:i:2:p:325-342
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505578

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  1. Kennedy Peter W., 1994. "Equilibrium Pollution Taxes in Open Economies with Imperfect Competition," Journal of Environmental Economics and Management, Elsevier, vol. 27(1), pages 49-63, July.
  2. Gaudet, Gerard & Lassere, Pierre & Long, Ngo Van, 1995. "Optimal Resource Royalties with Unknown and Temporally Independent Extraction Cost Structures," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(3), pages 715-49, August.
  3. Gérard Gaudet & Pierre Lasserre & Ngo Van Long, 1999. "Real Investment Decisions Under Adjustment Costs and Asymmetric Information," Cahiers de recherche du Département des sciences économiques, UQAM 9908, Université du Québec à Montréal, Département des sciences économiques.
  4. Sappington, David E M & Sibley, David S, 1988. "Regulating without Cost Information: The Incremental Surplus Subsidy Scheme," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 29(2), pages 297-306, May.
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  6. GAUDET, Gerard & LASSERRE, Pierre & LONG, Ngo Van, 1995. "Real Investment Decisions Under Information Constraints," Cahiers de recherche 9515, Université Laval - Département d'économique.
  7. Karp, Larry & Newbery, David M., 1993. "Intertemporal consistency issues in depletable resources," Handbook of Natural Resource and Energy Economics, in: A. V. Kneese† & J. L. Sweeney (ed.), Handbook of Natural Resource and Energy Economics, edition 1, volume 3, chapter 19, pages 881-931 Elsevier.
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  9. Morch von der Fehr, N-H., 1991. "Tradable Emission Rights and Strategic Interaction," Memorandum 11/1991, Oslo University, Department of Economics.
  10. Gérard Gaudet & Pierre Lasserre & Ngo Van Long, 1993. "Dynamic Incentive Contracts with Uncorrelated Private Information and History Dependent Outcomes," Cahiers de recherche du Département des sciences économiques, UQAM 9302, Université du Québec à Montréal, Département des sciences économiques.
  11. Fershtman, Chaim & Kamien, Morton I, 1987. "Dynamic Duopolistic Competition with Sticky Prices," Econometrica, Econometric Society, vol. 55(5), pages 1151-64, September.
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  14. Laffont, Jean-Jacques & Tirole, Jean, 1996. "Pollution permits and compliance strategies," Journal of Public Economics, Elsevier, vol. 62(1-2), pages 85-125, October.
  15. Karp Larry & Livernois John, 1994. "Using Automatic Tax Changes to Control Pollution Emissions," Journal of Environmental Economics and Management, Elsevier, vol. 27(1), pages 38-48, July.
  16. Jean-Jacques Laffont & Jean Tirole, 1985. "The Dynamics of Incentive Contracts," Working papers 397, Massachusetts Institute of Technology (MIT), Department of Economics.
  17. Van Long, N. & Soubeyran, A., 1997. "Cost Manipulation in Oligopoly: A Duality Approach," ASSET - Instituto De Economia Publica 174, ASSET (Association of Southern European Economic Theorists).
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  20. Farzin, Y. H., 1996. "Optimal pricing of environmental and natural resource use with stock externalities," Journal of Public Economics, Elsevier, vol. 62(1-2), pages 31-57, October.
  21. Karp, Larry & Livernois, John, 1992. "On efficiency-inducing taxation for a non-renewable resource monopolist," Journal of Public Economics, Elsevier, vol. 49(2), pages 219-239, November.
  22. Dockner Engelbert J. & Van Long Ngo, 1993. "International Pollution Control: Cooperative versus Noncooperative Strategies," Journal of Environmental Economics and Management, Elsevier, vol. 25(1), pages 13-29, July.
  23. Newbery, David M G, 1990. "Acid Rain," CEPR Discussion Papers 442, C.E.P.R. Discussion Papers.
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