E-Commerce, Parcel Delivery and Environmental Policy

We study the design of environmental policy in the e-commerce sector and examine two main questions. First, what is the appropriate "level" of intervention along the value chain. Second, which instruments should be used at a specific level in the vertical chain? We consider a model with two retailers/producers who sell a differentiated product and two parcel delivery operators. The production, retailing and delivery of these goods generates CO2 emissions. We assume that it is more expensive for the retailers and the delivery operators to use "green" technologies. We consider different scenarios reflecting the type of competition and the vertical structure of the industry. In all cases the equilibria are inefficient for two reasons. First, at both level of the value chain (at the production/retailing stage and the delivery stage), the levels of emissions are too large (given the output levels - the number of items produced and delivered). Second the levels of outputs are not efficient because the cost of emissions is not reflected by the consumer prices. We show that in the perfect competition scenario a uniform Pigouvian tax on emission, reflecting the marginal social damage, is sufficient to correct both types of inefficiencies. Under imperfect competition a Pigouvian emissions tax is also necessary, but it has to be supplemented by positive or negative taxes on the quantity of good produced and delivered. The specific design of these instruments is affected by vertical integration between a retailer and a delivery operator.