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Pollution Abatement Subsidies and the Eco-Industry

  • Maia David

    ()

  • Bernard Sinclair-Desgagné

    ()

This paper considers the combination of pollution taxes and abatement subsidies when some polluting firms procure their abatement goods and services from an oligopolistic eco-industry. The regulator must here cope with two simultaneous price distortions: one that comes from pollution and the other which is caused by the eco-industry's market power. In this context, we show that taxing emissions while subsidizing polluters' abatement efforts cannot lead to first-best, but the opposite occurs provided it is the eco-industry's output which is subsidized. When public transfers also create distortions, welfare can be higher if the regulator uses only an emission tax, but subsidizing abatement suppliers while taxing emissions remains optimal when the eco-industry is concentrated.

(This abstract was borrowed from another version of this item.)

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File URL: http://hdl.handle.net/10.1007/s10640-009-9315-3
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Article provided by European Association of Environmental and Resource Economists in its journal Environmental and Resource Economics.

Volume (Year): 45 (2010)
Issue (Month): 2 (February)
Pages: 271-282

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Handle: RePEc:kap:enreec:v:45:y:2010:i:2:p:271-282
Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=100263

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  1. Maia David & Bernard Sinclair-Desgagné, 2005. "Environmental regulation and the eco-industry," Working Papers hal-00243019, HAL.
  2. Lerner, Abba P, 1972. "Pollution Abatement Subsidies," American Economic Review, American Economic Association, vol. 62(5), pages 1009-10, December.
  3. Fullerton Don & Mohr Robert D., 2003. "Suggested Subsidies are Sub-optimal Unless Combined with an Output Tax," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 2(1), pages 1-22, January.
  4. Joan Canton & Antoine Soubeyran & Hubert Stahn, 2008. "Environmental Taxation and Vertical Cournot Oligopolies: How Eco-industries Matter," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 40(3), pages 369-382, July.
  5. Carlo Carraro & Gilbert E. Metcalf, 2001. "Behavioral and Distributional Effects of Environmental Policy," NBER Books, National Bureau of Economic Research, Inc, number carr01-1.
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