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Regulating a Polluting Oligopoly: Emission Tax or Voluntary Agreement?

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  • Maia David

Abstract

This paper compares, in a polluting oligopoly, an emission tax and a form of environmental policy called voluntary agreement (VA). There are here two ways of reducing pollution: output contraction and endof- pipe abatement. Given the imperfect competition, firms' reaction to the tax is sub-optimal. They reduce output excessively in order to raise the price and do not abate enough. The VA is a take-it-or-leaveit contract on abatement effort, offered to the firms with the threat of a tax. It has a limited effect on output and always allows higher abatement than the tax. We find that this kind of VA may be more efficient than the tax in a concentrated industry, when pollution is not too harmful and when the abatement technology is rather efficient and cheap.

Suggested Citation

  • Maia David, 2004. "Regulating a Polluting Oligopoly: Emission Tax or Voluntary Agreement?," Working Papers 2004/07, INRA, Economie Publique.
  • Handle: RePEc:apu:wpaper:2004/07
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    References listed on IDEAS

    as
    1. Farzin, Y H & Kort, P M, 2000. " Pollution Abatement Investment When Environmental Regulation Is Uncertain," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 2(2), pages 183-212.
    2. Buchanan, James M, 1969. "External Diseconomies, Corrective Taxes, and Market Structure," American Economic Review, American Economic Association, vol. 59(1), pages 174-177, March.
    3. Barnett, A H, 1980. "The Pigouvian Tax Rule under Monopoly," American Economic Review, American Economic Association, vol. 70(5), pages 1037-1041, December.
    4. Baumol,William J. & Oates,Wallace E., 1988. "The Theory of Environmental Policy," Cambridge Books, Cambridge University Press, number 9780521322249.
    5. Anna Alberini & Kathleen Segerson, 2002. "Assessing Voluntary Programs to Improve Environmental Quality," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 22(1), pages 157-184, June.
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    Cited by:

    1. Ouchida, Yasunori & Goto, Daisaku, 2014. "Do emission subsidies reduce emission? In the context of environmental R&D organization," Economic Modelling, Elsevier, vol. 36(C), pages 511-516.

    More about this item

    Keywords

    Pollution regulation;

    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
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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