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The Adverse Effects of Environmental Policy in Green Markets


  • J. L. Moraga-González

    (Tinbergen Institute, Rotterdam)

  • Noemi Padrón-Fumero

    (University Pompeu Fabra)


We model green markets in which purchasers, either firms or consumers, have higher willingness-to-pay for less polluting goods. The effectiveness of pollution reduction policies is examined in a duopoly setting. We show that duopolists´ strategic behaviour may increase pollution levels. Maximum emission standards, commonly used in green markets, improve the environmental features of products. Nonetheless, overall pollution levels will rise because government regulation also affects market shares and boosts firms´ sales. Consequently, social welfare may be reduced. We also explore the effects of technological subsidies and product charges, including differentiation of charges.

Suggested Citation

  • J. L. Moraga-González & Noemi Padrón-Fumero, 1998. "The Adverse Effects of Environmental Policy in Green Markets," CIE Discussion Papers 1998-11, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
  • Handle: RePEc:kud:kuieci:1998-11

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    Cited by:

    1. Valentini, Laura, 2005. "Environmental quality provision and eco-labelling: Some issues," WTO Staff Working Papers ERSD-2005-02, World Trade Organization (WTO), Economic Research and Statistics Division.
    2. Laura Valentini, 2005. "Environmental Quality Provision and Eco-labelling: Some Issues," Working Papers id:281, eSocialSciences.

    More about this item


    emission standards; subsidies; product charges; vertically differentiated duopoly;

    JEL classification:

    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy


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