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Optimal Environmental Taxation, R&D Subsidization and the Role of Market Conduct

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  • Joanna Poyago-Thotoky

    (Department of Economics, University of St Andrews, United Kingdom)

Abstract

The paper examines the optimal environmental policy in a differentiated goods duopoly with either price- or quantity-setting firms, where firms invest in environmental R&D that reduces emissions. It is shown that in quantity (Cournot) competition, the emission tax is always lower than marginal damages. With price (Bertrand) competition, the emission tax is generally lower than marginal damages. However, for the case of very undifferentiated products, the emission tax is equal to marginal damages, that is, it approaches the first-best tax. Moreover, the Cournot emission tax is always lower than the Bertand emission tax. Concerning the R&D subsidy, the comparison crucially depends on the degree of product differentiation and the initial emissions coefficient.

Suggested Citation

  • Joanna Poyago-Thotoky, 2003. "Optimal Environmental Taxation, R&D Subsidization and the Role of Market Conduct," Finnish Economic Papers, Finnish Economic Association, vol. 16(1), pages 15-26, Spring.
  • Handle: RePEc:fep:journl:v:16:y:2003:i:1:p:15-26
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    References listed on IDEAS

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    Cited by:

    1. Flavio M. Menezes & Jorge Pereira, 2017. "Emissions abatement R&D: Dynamic competition in supply schedules," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 19(4), pages 841-859, August.
    2. Rupayan Pal, 2012. "Delegation And Emission Tax In A Differentiated Oligopoly," Manchester School, University of Manchester, vol. 80(6), pages 650-670, December.
    3. Stefan Lutz & Mario Pezzino, 2010. "Mixed oligopoly, vertical product differentiation and fixed qualitydependent costs," Economics Discussion Paper Series 1015, Economics, The University of Manchester.
    4. Lee, Sang-Ho & Park, Chul-Hi, 2020. "Environmental Regulations in Private and Mixed Duopolies: Emission Taxes versus Green R&D Subsidies," MPRA Paper 98833, University Library of Munich, Germany.
    5. Stuart McDonald & Joanna Poyago-Theotoky, 2012. "Research Joint Ventures and Optimal Emissions Taxation," Discussion Papers Series 455, School of Economics, University of Queensland, Australia.
    6. Stefan Lutz & Mario Pezzino, 2014. "Vertically Differentiated Mixed Oligopoly with Quality-dependent Fixed Costs," Manchester School, University of Manchester, vol. 82(5), pages 596-619, September.
    7. Joanna Poyago-Theotoky & Stuart McDonald, 2012. "Green Technology, Research Joint Ventures and Emissions Taxation?," Working Papers 2012.06, School of Economics, La Trobe University.
    8. Xing, Mingqing & Tan, Tingting & Wang, Xia, 2021. "Emission taxes and environmental R&D risk choices in a duopoly market," Economic Modelling, Elsevier, vol. 101(C).

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    More about this item

    JEL classification:

    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy
    • H29 - Public Economics - - Taxation, Subsidies, and Revenue - - - Other
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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