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Environmental Taxation and Strategic Commitment in Duopoly Models

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  • Fredrik Carlsson

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Abstract

In this paper, we address the issue of optimalenvironmental taxation under imperfect competition.The problem is analysed for three different types ofduopoly models, the Cournot open and closed loopmodels, and the Stackelberg model. We explicitlyanalyse the role of strategic behaviour. Each firm hasto make a choice of output level and of the level ofa strategic variable. The choice of this strategicvariable affects both marginal cost and emissions. Wecompare the properties of these three duopoly models,and derive and compare optimal environmental taxes. Weshow that whether the optimal tax is lower or higherthan marginal environmental costs depends on theinformation transmission and the effect of thestrategic variable on marginal costs. In addition, thedifferences in market shares, and the influence of thetax on the cost structure play important roles, indetermining optimal emission taxes. Copyright Kluwer Academic Publishers 2000

Suggested Citation

  • Fredrik Carlsson, 2000. "Environmental Taxation and Strategic Commitment in Duopoly Models," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 15(3), pages 243-256, March.
  • Handle: RePEc:kap:enreec:v:15:y:2000:i:3:p:243-256
    DOI: 10.1023/A:1008362222639
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    References listed on IDEAS

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    1. Barnett, A H, 1980. "The Pigouvian Tax Rule under Monopoly," American Economic Review, American Economic Association, vol. 70(5), pages 1037-1041, December.
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    4. Buchanan, James M, 1969. "External Diseconomies, Corrective Taxes, and Market Structure," American Economic Review, American Economic Association, vol. 59(1), pages 174-177, March.
    5. Katsoulacos, Yannis & Xepapadeas, Anastasios, 1995. " Environmental Policy under Oligopoly with Endogenous Market Structure," Scandinavian Journal of Economics, Wiley Blackwell, vol. 97(3), pages 411-420, September.
    6. Vives, Xavier, 1989. "Technological competition, uncertainty, and oligopoly," Journal of Economic Theory, Elsevier, vol. 48(2), pages 386-415, August.
    7. Simpson, R. David & Bradford, Robert III, 1996. "Taxing Variable Cost: Environmental Regulation as Industrial Policy," Journal of Environmental Economics and Management, Elsevier, vol. 30(3), pages 282-300, May.
    8. Spencer, Barbara J. & Brander, James A., 1992. "Pre-commitment and flexibility : Applications to oligopoly theory," European Economic Review, Elsevier, vol. 36(8), pages 1601-1626, December.
    9. R. Simpson, 1995. "Optimal pollution taxation in a Cournot duopoly," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 6(4), pages 359-369, December.
    10. Carraro, Carlo & Soubeyran, Antoine, 1995. "Environmental Feedbacks and Optimal Taxation in Oligopoly," CEPR Discussion Papers 1156, C.E.P.R. Discussion Papers.
    11. Alistair fnUlph, 1996. "Environmental policy instruments and imperfectly competitive international trade," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 7(4), pages 333-355, June.
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    Citations

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    Cited by:

    1. Erin T. Mansur, 2007. "Prices vs. Quantities: Environmental Regulation and Imperfect Competition," NBER Working Papers 13510, National Bureau of Economic Research, Inc.
    2. Manel Antelo, 2005. "Double informational asymmetry, signaling, and environmental taxes," Economic Working Papers at Centro de Estudios Andaluces E2005/25, Centro de Estudios Andaluces.
    3. Carlsson, Fredrik, 2002. "Airport Marginal Cost Pricing: Discussion and an Application to Swedish Airports," Working Papers in Economics 85, University of Gothenburg, Department of Economics.
    4. Juan Bárcena-Ruiz & María Garzón, 2014. "Multiproduct Firms and Environmental Policy Coordination," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 59(3), pages 407-431, November.
    5. Moner-Colonques, R. & Rubio, S., 2015. "The timing of environmental policy in a duopolistic market," Economia Agraria y Recursos Naturales, Spanish Association of Agricultural Economists, vol. 15(1).
    6. Rupayan Pal, 2012. "Delegation And Emission Tax In A Differentiated Oligopoly," Manchester School, University of Manchester, vol. 80(6), pages 650-670, December.
    7. Ralf Löschel, "undated". "Optimal Allocation of EU Emission Allowances under Imperfect Competition," Energy and Environmental Modeling 2007 24000033, EcoMod.
    8. Bárcena-Ruiz, Juan Carlos & Campo, María Luz, 2012. "Partial cross-ownership and strategic environmental policy," Resource and Energy Economics, Elsevier, vol. 34(2), pages 198-210.
    9. 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.
    10. Leonard F.S. Wang & Ya-Chin Wang & Lihong Zhao, 2012. "The incidence of environmental regulation in a developing economy with sector-specific unemployment: a note," Economics and Business Letters, Oviedo University Press, vol. 1(1), pages 3-11.
    11. Fischer, Carolyn, 2011. "Market power and output-based refunding of environmental policy revenues," Resource and Energy Economics, Elsevier, vol. 33(1), pages 212-230, January.
    12. Carlsson , Fredrik, 2000. "Environmental Taxation in Airline Markets," Working Papers in Economics 24, University of Gothenburg, Department of Economics.
    13. Orlov, Anton & Grethe, Harald, 2012. "Carbon taxation and market structure: A CGE analysis for Russia," Energy Policy, Elsevier, vol. 51(C), pages 696-707.
    14. Paolo GARELLA & Maria Teresa TRENTINAGLIA DE DAVERIO, 2015. "Carbon Tax, Emission Permits, and Carbon Leak under Price Competition," Departmental Working Papers 2015-06, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    15. Hamilton, Stephen F. & Requate, Till, 2004. "Vertical structure and strategic environmental trade policy," Journal of Environmental Economics and Management, Elsevier, vol. 47(2), pages 260-269, March.
    16. Vetter Henrik, 2005. "Pollution Taxes for Monopolistically Competitive Firms," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 5(1), pages 1-25, May.
    17. Requate, Till, 2005. "Environmental Policy under Imperfect Competition: A Survey," Economics Working Papers 2005-12, Christian-Albrechts-University of Kiel, Department of Economics.
    18. Carlsson, F., 1999. "Incentive-based environmental regulation of domestic civil aviation in Sweden," Transport Policy, Elsevier, vol. 6(2), pages 75-82, April.
    19. Jihad C. Elnaboulsi, 2015. "Environmental Regulation and Policy Design: The Impact of the Regulator?s Ecological Conscience on the Tax Setting Process," Working Papers 2015-11, CRESE.
    20. repec:kap:jeczfn:v:122:y:2017:i:3:d:10.1007_s00712-017-0541-9 is not listed on IDEAS
    21. repec:kap:jeczfn:v:122:y:2017:i:1:d:10.1007_s00712-017-0531-y is not listed on IDEAS
    22. Antelo, Manel & Loureiro, Maria L., 2009. "Asymmetric information, signaling and environmental taxes in oligopoly," Ecological Economics, Elsevier, vol. 68(5), pages 1430-1440, March.
    23. Rupayan Pal, 2009. "Delegation and Emission Tax in a Differentiated Oligopoly," Working Papers id:2263, eSocialSciences.

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