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Selective Penalization Of Polluters: An Inf-Convolution Approach

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  • Ngo Van Long
  • Antoine Soubeyran

Abstract

In this paper, we consider an asymmetric polluting oligopoly: firms have different production costs, and their pollution characteristics may also be different. We will demonstrate that, in this case, optimal tax rates per unit of emission are not the same for all firms. We call this property ``selective penalization'', or ``favoritism in penalties.'' Thus, the ``efficiency'' objective may be served only at the expense of ``fairness'. One of our main results is the Optimal Distortion Theorem.. We show that even in the case w here the rates of emission per unit of output are identical for all firms, the efficient tax structure requires that high cost firms pay a higher tax rate on emissions. Our result implies that the efficient tax structure favors the efficient firms, but the magnitude of the favors is a decreasing function of the marginal cost of public fund. Another characterization of optimal tax structure is our Pro-concentration Motive Theorem. Optimal taxes penalize the inefficient firms more, and thus increases the concentration of the industry, as measured by the Herfindahl index. In fact, we show that the variance of the distribution of the firms' tax-inclusive marginal costs after the imposition of efficient taxes exceeds the variance that would be obtained if there were no taxes. We call this the Magnification Effect: the variance of marginal costs is magnified by a factor which depends on the marginal cost of public fund. On modélise un oligopole hétérogène : les firmes ont des coûts différents et des paramètres de pollution différents. On montre que les taux de taxes optimales imposées sur les émissions ne sont pas les mêmes. On appelle cette propriété la pénalisation sélective. Il existe donc un conflit entre l'équité et l'efficacité. Le résultat principal de notre article est Le Théorème de la Distorsion Optimale. La structure des taxes optimales exige que les firmes aux coûts les plus élevés paient les taxes les plus élevées. Un autre résultat s'appelle le Théorème sur le motif pro-concentration.

Suggested Citation

  • Ngo Van Long & Antoine Soubeyran, 2002. "Selective Penalization Of Polluters: An Inf-Convolution Approach," CIRANO Working Papers 2002s-40, CIRANO.
  • Handle: RePEc:cir:cirwor:2002s-40
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    References listed on IDEAS

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    Cited by:

    1. Rupayan Pal & Bibhas Saha, 2010. "Does partial privatization improve the environment?," Microeconomics Working Papers 23021, East Asian Bureau of Economic Research.
    2. Hassan Benchekroun & Ngo Van Long, 2008. "A Class Of Performance-Based Subsidy Rules," The Japanese Economic Review, Japanese Economic Association, vol. 59(4), pages 381-400.
    3. Jihad Elnaboulsi & W Daher & Y Saglam, 2015. "On the Social Value of Disclosed Information and Environmental Regulation," Working Papers hal-01377918, HAL.
    4. Requate, Till, 2005. "Environmental Policy under Imperfect Competition: A Survey," Economics Working Papers 2005-12, Christian-Albrechts-University of Kiel, Department of Economics.
    5. 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.
    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. Jinji, Naoto, 2014. "Comparative statics for oligopoly: A generalized result," Economics Letters, Elsevier, vol. 124(1), pages 79-82.
    8. Meredith Fowlie, 2008. "Incomplete Environmental Regulation, Imperfect Competition, and Emissions Leakage," NBER Working Papers 14421, National Bureau of Economic Research, Inc.
    9. George E. Halkos & George J. Papageorgiou, 2012. "Pollution Control Policy: A Dynamic Taxation Scheme," Czech Economic Review, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, vol. 6(1), pages 14-37, March.
    10. Rabah Amir & Niels Nannerup, 2005. "Asymmetric Regulation of Identical Polluters in Oligopoly Models," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 30(1), pages 35-48, January.
    11. Rupayan Pal, 2009. "Delegation and Emission Tax in a Differentiated Oligopoly," Working Papers id:2263, eSocialSciences.
    12. Antelo, Manel & Loureiro, Maria L., 2009. "Asymmetric information, signaling and environmental taxes in oligopoly," Ecological Economics, Elsevier, vol. 68(5), pages 1430-1440, March.
    13. Lapan, Harvey E. & Hennessy, David A., 2008. "Statistical moments analysis of production and welfare in multi-product Cournot oligopoly," International Journal of Industrial Organization, Elsevier, vol. 26(2), pages 598-606, March.

    More about this item

    Keywords

    Pollution; environmental regulation; oligopoly; Pollution; réglementations environnementales; oligopole;

    JEL classification:

    • Q20 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - General
    • D60 - Microeconomics - - Welfare Economics - - - General
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

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