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Emission taxes and the market for abatement goods and services

  • David, Maia
  • Nimubona, Alain-Désiré
  • Sinclair-Desgagné, Bernard

This paper examines the effect of emission taxes on pollution abatement and social welfare, when abatement goods and services are provided by a Cournot oligopoly with free-entry. We point out initially that a higher tax not only increases demand for abatement; it also makes polluters less sensitive to price. This attracts a larger number of abatement suppliers while possibly inducing each one of them to produce less. Total abatement always goes up, however, when the delivery of abatement goods and services exhibits decreasing returns to scale. We then calculate the welfare-maximizing emission tax and compare it to the Pigouvian tax.

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Article provided by Elsevier in its journal Resource and Energy Economics.

Volume (Year): 33 (2011)
Issue (Month): 1 (January)
Pages: 179-191

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Handle: RePEc:eee:resene:v:33:y:2011:i:1:p:179-191
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  1. Alain-Désiré Nimubona & Bernard Sinclair-Desgagné, 2005. "The Pigouvian Tax Rule in the Presence of an Eco-Industry," CIRANO Working Papers 2005s-21, CIRANO.
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  7. Carlo Carraro & Gilbert E. Metcalf, 2001. "Introduction to "Behavioral and Distributional Effects of Environmental Policy"," NBER Chapters, in: Behavioral and Distributional Effects of Environmental Policy, pages 1-12 National Bureau of Economic Research, Inc.
  8. Lee, Sang-Ho, 1999. "Optimal Taxation for Polluting Oligopolists with Endogenous Market Structure," Journal of Regulatory Economics, Springer, vol. 15(3), pages 293-308, May.
  9. Maia David & Bernard Sinclair-Desgagné, 2005. "Environmental regulation and the eco-industry," Working Papers hal-00243019, HAL.
  10. AMIR, Rabah & LAMBSON, Val, 1999. "On the effects of entry in Cournot markets," CORE Discussion Papers 1999059, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  13. Fujiwara, Kenji, 2009. "Environmental policies in a differentiated oligopoly revisited," Resource and Energy Economics, Elsevier, vol. 31(3), pages 239-247, August.
  14. Till Requate, 2005. "Timing and Commitment of Environmental Policy, Adoption of New Technology, and Repercussions on R&D," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 31(2), pages 175-199, 06.
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  16. Hamilton, Stephen F., 1999. "Demand shifts and market structure in free-entry oligopoly equilibria," International Journal of Industrial Organization, Elsevier, vol. 17(2), pages 259-275, February.
  17. Quirmbach, Herman C, 1988. "Comparative Statics for Oligopoly: Demand Shift Effects," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 29(3), pages 451-59, August.
  18. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, June.
  19. Carlo Carraro & Gilbert E. Metcalf, 2001. "Behavioral and Distributional Effects of Environmental Policy," NBER Books, National Bureau of Economic Research, Inc, number carr01-1, December.
  20. Rosenthal, Robert W, 1980. "A Model in Which an Increase in the Number of Sellers Leads to a Higher Price," Econometrica, Econometric Society, vol. 48(6), pages 1575-79, September.
  21. Maia David & Bernard Sinclair-Desgagné, 2010. "Pollution Abatement Subsidies and the Eco-Industry," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 45(2), pages 271-282, February.
  22. Simon GB Cowan & Simon Cowan, 2004. "Demand shifts and imperfect competition," Economics Series Working Papers 188, University of Oxford, Department of Economics.
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