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Optimal Emission Tax with Endogenous Location Choice of Duopolistic Firms

Author

Listed:
  • Masako Ikefuji

    (nstitute of Social and Economic Research Osaka University)

  • Jun-ichi Itaya

    (Hokkaido University)

  • Makoto Okamura

    (Hiroshima University)

Abstract

This paper explores optimal environmental tax policy under which duopoly firms strategically choose the location of their plants in a simple three-stage game. We examine how the relationship between the optimal emission tax and the choice of location of duopoly firms affects the welfare of the home country. We characterize the relationship between the optimal emission tax and the fixed cost, depending on the degree of environmental damage from production. Finally, we show the existence of asymmetric equilibrium in which either firm chooses relocation of its plant even if the duopoly firms are identical ex ante.

Suggested Citation

  • Masako Ikefuji & Jun-ichi Itaya & Makoto Okamura, 2010. "Optimal Emission Tax with Endogenous Location Choice of Duopolistic Firms," Working Papers 2010.6, Fondazione Eni Enrico Mattei.
  • Handle: RePEc:fem:femwpa:2010.6
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    References listed on IDEAS

    as
    1. Hamilton, Jonathan H. & Slutsky, Steven M., 1990. "Endogenous timing in duopoly games: Stackelberg or cournot equilibria," Games and Economic Behavior, Elsevier, vol. 2(1), pages 29-46, March.
    2. Yomogida, Morihiro, 2007. "Fragmentation, welfare, and imperfect competition," Journal of the Japanese and International Economies, Elsevier, vol. 21(3), pages 365-378, September.
    3. M. Ali Khan, 2007. "Perfect Competition," PIDE-Working Papers 2007:15, Pakistan Institute of Development Economics.
    4. Markusen James R. & Morey Edward R. & Olewiler Nancy D., 1993. "Environmental Policy when Market Structure and Plant Locations Are Endogenous," Journal of Environmental Economics and Management, Elsevier, vol. 24(1), pages 69-86, January.
    5. Petrakis, Emmanuel & Xepapadeas, Anastasios, 2003. "Location decisions of a polluting firm and the time consistency of environmental policy," Resource and Energy Economics, Elsevier, vol. 25(2), pages 197-214, May.
    6. Greaker, Mads, 2003. "Strategic environmental policy when the governments are threatened by relocation," Resource and Energy Economics, Elsevier, vol. 25(2), pages 141-154, May.
    7. Adam B. Jaffe et al., 1995. "Environmental Regulation and the Competitiveness of U.S. Manufacturing: What Does the Evidence Tell Us?," Journal of Economic Literature, American Economic Association, vol. 33(1), pages 132-163, March.
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    10. repec:wsi:wschap:9789813141094_0009 is not listed on IDEAS
    11. Judith M. Dean & Mary E. Lovely & Hua Wang, 2017. "Are foreign investors attracted to weak environmental regulations? Evaluating the evidence from China," World Scientific Book Chapters,in: International Economic Integration and Domestic Performance, chapter 9, pages 155-167 World Scientific Publishing Co. Pte. Ltd..
    12. Eskeland, Gunnar S. & Harrison, Ann E., 2003. "Moving to greener pastures? Multinationals and the pollution haven hypothesis," Journal of Development Economics, Elsevier, vol. 70(1), pages 1-23, February.
    13. Ulrich Wagner & Christopher Timmins, 2009. "Agglomeration Effects in Foreign Direct Investment and the Pollution Haven Hypothesis," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 43(2), pages 231-256, June.
    14. Markusen, James R. & Morey, Edward R. & Olewiler, Nancy, 1995. "Competition in regional environmental policies when plant locations are endogenous," Journal of Public Economics, Elsevier, vol. 56(1), pages 55-77, January.
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    16. Katsoulacos, Yannis & Xepapadeas, Anastasios, 1995. " Environmental Policy under Oligopoly with Endogenous Market Structure," Scandinavian Journal of Economics, Wiley Blackwell, vol. 97(3), pages 411-420, September.
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    Citations

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    Cited by:

    1. Francesca Sanna-Randaccio & Roberta Sestini & Ornella Tarola, 2014. "Unilateral Climate Policy and Foreign Direct Investment with Firm and Country Heterogeneity," Working Papers 2014.55, Fondazione Eni Enrico Mattei.
    2. Daniel Nachtigall, 2016. "Climate policy under firm relocation: The implications of phasing out free allowances," Working Papers 2016007, Berlin Doctoral Program in Economics and Management Science (BDPEMS).
    3. Voßwinkel, Jan & Birg, Laura, 2017. "Emission Taxes, Relocation, and Quality Differences," Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168298, Verein für Socialpolitik / German Economic Association.
    4. G. Ceccantoni & O. Tarola & C. Vergari, 2017. "Relative tax in a vertically differentiated market: the key role of consumers in environment," Working Papers wp2005, Dipartimento Scienze Economiche, Universita' di Bologna.
    5. Nachtigall, Daniel, 2016. "Climate policy under firm relocation: The implications of phasing out free allowances," Discussion Papers 2016/25, Free University Berlin, School of Business & Economics.

    More about this item

    Keywords

    Environmental policy; Relocation; Welfare;

    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

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