On Environmental Subsidy/Tax Policy with Heterogeneous Consumers: An Application of an Environmentally Differentiated Duopoly Model
We apply a model of an environmentally differentiated duopoly to the analysis of environmental policy in the form of a subsidy/tax on consumers based on emission levels of products. More specifically, we consider environmental and welfare effects of subsidizing consumers who purchase environmental-friendly goods such as hybrid vehicles. Focusing on types of market coverage by heterogeneous consumers, we examine the issue in the cases of a Bertrand and a Cournot duopoly. In the case of full market coverage with a Bertrand duopoly, an environmental subsidy improves the environment and is socially optimal. However, in the case of partial market coverage, irrespective of mode of competition, the optimal policy depends on the magnitude of the marginal social valuation of environmental damage. That is, if the marginal social valuation of environmental damage is sufficiently large (small), an environmental tax (subsidy) is optimal. Furthermore, in the Bertrand duopoly case, the effect of subsidy on the environment is ambiguous, whereas in the Cournot duopoly case, the subsidy degrades the environment.
|Date of creation:||Apr 2008|
|Date of revision:||Apr 2008|
|Contact details of provider:|| Postal: 1-155 Uegahara Ichiban-cho, Nishinomiya, Hyogo 662-8501|
Web page: http://www-econ.kwansei.ac.jp/~econ/index_e.html
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Kahn, Matthew E., 2007. "Do greens drive Hummers or hybrids? Environmental ideology as a determinant of consumer choice," Journal of Environmental Economics and Management, Elsevier, vol. 54(2), pages 129-145, September.
- Toshimitsu, Tsuyoshi, 2008. "Effect of a tariff on the environment and welfare: The case of an environmental differentiated duopoly in a Green Market," Japan and the World Economy, Elsevier, vol. 20(1), pages 114-128, January.
- Nash, Chris & Sansom, Tom & Still, Ben, 2001. "Modifying transport prices to internalise externalities: evidence from European case studies," Regional Science and Urban Economics, Elsevier, vol. 31(4), pages 413-431, July.
- Bansal, Sangeeta & Gangopadhyay, Shubhashis, 2003. "Tax/subsidy policies in the presence of environmentally aware consumers," Journal of Environmental Economics and Management, Elsevier, vol. 45(2, Supple), pages 333-355, March.
- Baumol,William J. & Oates,Wallace E., 1988.
"The Theory of Environmental Policy,"
Cambridge University Press, number 9780521311120, 1.
- Proost, Stef & Van Dender, Kurt, 2001. "The welfare impacts of alternative policies to address atmospheric pollution in urban road transport," Regional Science and Urban Economics, Elsevier, vol. 31(4), pages 383-411, July.
- Ida Ferrara, 2007. "Automobile quality choice under pollution control regulation," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 38(3), pages 353-372, November.
- C. Lombardini-Riipinen, 2005. "Optimal Tax Policy under Environmental Quality Competition," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 32(3), pages 317-336, November.
- Cremer, Helmuth & Gahvari, Firouz & Ladoux, Norbert, 1998. "Externalities and optimal taxation," Journal of Public Economics, Elsevier, vol. 70(3), pages 343-364, December.
- Cremer, Helmuth & Thisse, Jacques-Francois, 1999.
"On the taxation of polluting products in a differentiated industry,"
European Economic Review,
Elsevier, vol. 43(3), pages 575-594, March.
- CREMER, Helmuth & THISSE, Jacques-FranÃ§ois, . "On the taxation of polluting products in a differentiated industry," CORE Discussion Papers RP 1384, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Cremer, Helmuth & Gahvari, Firouz & Ladoux, Norbert, 2001.
"Environmental Taxes with Heterogeneous Consumers: An Application to Energy Consumption in France,"
IDEI Working Papers
127, Institut d'Économie Industrielle (IDEI), Toulouse, revised 2002.
- Cremer, Helmuth & Gahvari, Firouz & Ladoux, Norbert, 2003. "Environmental taxes with heterogeneous consumers: an application to energy consumption in France," Journal of Public Economics, Elsevier, vol. 87(12), pages 2791-2815, December.
When requesting a correction, please mention this item's handle: RePEc:kgu:wpaper:38. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Toshihiro Okada)
If references are entirely missing, you can add them using this form.