Pollution Tax and Social Welfare in Oligopoly: Asymmetric Taxation on Identical Polluters
We study asymmetric pollution taxation on identical polluting oligopolists engaged in Cournot competition. It has been studied that an identical firms must be treated symmetrically and that the second-best pollution tax is a uniform tax. But, asymmetric treatment of identical firms generates an aggregate cost-saving effect, which is oligopoly-specific property. We consider a manipulation of the uniform tax vector without changing the total emissions which will be emitted under the uniform pollution tax. We derive a sufficient condition that guarantees that unequal taxation on ex ante identical polluters increases welfare. We show that if the sufficient condition is satisfied, unequal emission standards as well as unequal taxation increases welfare.
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