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Environmental Policies, Mergers and Welfare

Author

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  • Mahelet G. Fikru

    () (Assistant Professor, Department of Economics, Missouri University of Science and Technology. Rolla, MO. USA.)

Abstract

Unlike previous theoretical studies, we examine the welfare effects of a merger when participating firms are in a pollution-intensive sector. With passive environmental policy we show that profitable mergers reduce welfare; and this is because the reduction in consumer surplus and tax revenue dominates any rise in profit and utility. On the contrary, with active policies we show that profitable mergers are welfare enhancing due to lower gross pollution, higher consumer surplus, lower tax costs and efficiency gains. The results imply that though environmental policies are adopted for the primary purpose of reducing pollution, such policies may have a negative effect on social welfare if they do not take into account the market structure and competitiveness of sectors.

Suggested Citation

  • Mahelet G. Fikru, 2013. "Environmental Policies, Mergers and Welfare," Economía Mexicana NUEVA ÉPOCA, , vol. 0(2), pages 449-461, July-Dece.
  • Handle: RePEc:emc:ecomex:v:22:y:2013:i:2:p:449-461
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    References listed on IDEAS

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    Cited by:

    1. Fikru, Mahelet G. & Gautier, Luis, 2016. "Mergers in Cournot markets with environmental externality and product differentiation," Resource and Energy Economics, Elsevier, vol. 45(C), pages 65-79.
    2. Mahelet G. Fikru & Matt Insall, 2016. "Is it more profitable to acquire cleaner or dirtier firms?," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 18(4), pages 443-457, October.

    More about this item

    Keywords

    end-of-the-pipe type abatement; environmental policy; merger; pollution intensity; welfare.;

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L4 - Industrial Organization - - Antitrust Issues and Policies
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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