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Pollution Abatement Subsidies and the Eco-Industry

Author

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  • Maia David

    ()

  • Bernard Sinclair-Desgagné

    ()

Abstract

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.
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Suggested Citation

  • Maia David & Bernard Sinclair-Desgagné, 2010. "Pollution Abatement Subsidies and the Eco-Industry," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 45(2), pages 271-282, February.
  • Handle: RePEc:kap:enreec:v:45:y:2010:i:2:p:271-282
    DOI: 10.1007/s10640-009-9315-3
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    File URL: http://hdl.handle.net/10.1007/s10640-009-9315-3
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    References listed on IDEAS

    as
    1. Lerner, Abba P, 1972. "Pollution Abatement Subsidies," American Economic Review, American Economic Association, vol. 62(5), pages 1009-1010, December.
    2. Maia David & Bernard Sinclair-Desgagné, 2005. "Environmental Regulation and the Eco-Industry," Journal of Regulatory Economics, Springer, vol. 28(2), pages 141-155, September.
    3. Joan Canton & Antoine Soubeyran & Hubert Stahn, 2008. "Environmental Taxation and Vertical Cournot Oligopolies: How Eco-industries Matter," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 40(3), pages 369-382, July.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Environment goods and services industry; Pigouvian taxes; Pollution abatement subsidies; H23; L13; Q58;

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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