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Selective Penalization Of Polluters: An Inf-Convolution Approach

  • Ngo Van Long
  • Antoine Soubeyran

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.

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Paper provided by CIRANO in its series CIRANO Working Papers with number 2002s-40.

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Length: 44 pages
Date of creation: 01 Apr 2002
Date of revision:
Handle: RePEc:cir:cirwor:2002s-40
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  1. Buchanan, James M, 1969. "External Diseconomies, Corrective Taxes, and Market Structure," American Economic Review, American Economic Association, vol. 59(1), pages 174-77, March.
  2. Long, N.V. & Soubeyran, A., 1998. "Cost Manipulation in an Asymmetric Oligopoly: The Taxation Problem," G.R.E.Q.A.M. 98a25, Universite Aix-Marseille III.
  3. Long, N.V. & Soubeyran, A., 1998. "Cost Manipulation in Oligopoly: A Duality Approach," G.R.E.Q.A.M. 98a22, Universite Aix-Marseille III.
  4. Hoel, Michael, 1993. "Intertemporal properties of an international carbon tax," Resource and Energy Economics, Elsevier, vol. 15(1), pages 51-70, March.
  5. Nathalie de Marcellis-Warin & Erwann Michel-Kerjan, 2001. "The Public-Private Sector Risk-Sharing in the French Insurance "Cat. Nat. System"""," CIRANO Working Papers 2001s-60, CIRANO.
  6. Ulph, Alistair, 1996. "Environmental Policy and International Trade when Governments and Producers Act Strategically," Journal of Environmental Economics and Management, Elsevier, vol. 30(3), pages 265-281, May.
  7. Hassan Benchekroun & Ngo Van Long, 1997. "Efficiency Inducing Taxation for Polluting Oligopolists," CIRANO Working Papers 97s-21, CIRANO.
  8. J. Peter Neary, 2000. "International Trade and the Environment - Theoretical and Policy Linkages," Working Papers 200018, School of Economics, University College Dublin.
  9. Browning, Edgar K, 1976. "The Marginal Cost of Public Funds," Journal of Political Economy, University of Chicago Press, vol. 84(2), pages 283-98, April.
  10. Gaudet, G. & Salant, S., 1988. "Uniqueness Of Cournot Equilibrium: New Results From Old Methods," Papers 89-10, Michigan - Center for Research on Economic & Social Theory.
  11. Rauscher, Michael, 1997. "International Trade, Factor Movements, and the Environment," OUP Catalogue, Oxford University Press, number 9780198290506, March.
  12. Long, Ngo Van & Soubeyran, Antoine, 2001. "Cost Manipulation Games in Oligopoly, with Costs of Manipulating," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(2), pages 505-33, May.
  13. Ngo Van Long & Antoine Soubeyran, 2001. "Emission Taxes and Standards for an Asymmetric Oligopoly," CIRANO Working Papers 2001s-07, CIRANO.
  14. Van Long, N. & Soubeyran, A., 1996. "Cost Heterogeneity, Industry Concentration and Startegic Trade Policies," G.R.E.Q.A.M. 96a39, Universite Aix-Marseille III.
  15. Collie, David, 1993. "Strategic trade policy under asymmetric oligopoly," European Journal of Political Economy, Elsevier, vol. 9(2), pages 275-280, May.
  16. Hansson, Ingemar & Stuart, Charles, 1985. "Tax revenue and the marginal cost of public funds in Sweden," Journal of Public Economics, Elsevier, vol. 27(3), pages 331-353, August.
  17. Van Long, Ngo & Soubeyran, Antoine, 2000. "Existence and uniqueness of Cournot equilibrium: a contraction mapping approach," Economics Letters, Elsevier, vol. 67(3), pages 345-348, June.
  18. Greg Shaffer & Stephen W. Salant, 1999. "Unequal Treatment of Identical Agents in Cournot Equilibrium," American Economic Review, American Economic Association, vol. 89(3), pages 585-604, June.
  19. Conrad Klaus, 1993. "Taxes and Subsidies for Pollution-Intensive Industries as Trade Policy," Journal of Environmental Economics and Management, Elsevier, vol. 25(2), pages 121-135, September.
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