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Market Power and Output-Based Refunding of Environmental Policy Revenues

  • Fischer, Carolyn


    (Resources for the Future)

Output-based refunding of environmental policy revenues combines a tax on emissions with a subsidy to output. With imperfect competition, subsidies can discourage output underprovision. However, when market shares are significant, endogenous refunding suffers compared to a fixed subsidy. Refunding the emissions tax according to market share reduces the incentive to abate, and marginal abatement costs will not be equalized if market shares differ. In a Cournot duopoly, endogenous refunding leads to higher output, emissions, and possibly costs compared to a fixed rebate program. These results hold whether emission rates are determined simultaneously or strategically in a two-stage model.

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Paper provided by Resources For the Future in its series Discussion Papers with number dp-03-27.

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Date of creation: 01 May 2003
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Handle: RePEc:rff:dpaper:dp-03-27
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  1. Andrew F. Daughety, 1985. "Reconsidering Cournot: The Cournot Equilibrium is Consistent," RAND Journal of Economics, The RAND Corporation, vol. 16(3), pages 368-379, Autumn.
  2. Robert W. Hahn, 1984. "Market Power and Transferable Property Rights," The Quarterly Journal of Economics, Oxford University Press, vol. 99(4), pages 753-765.
  3. Bernard, Alain L. & Fischer, Carolyn & Fox, Alan K., 2007. "Is there a rationale for output-based rebating of environmental levies?," Resource and Energy Economics, Elsevier, vol. 29(2), pages 83-101, May.
  4. Nirvikar Singh & Xavier Vives, 1984. "Price and Quantity Competition in a Differentiated Duopoly," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 546-554, Winter.
  5. Katsoulacos, Yannis & Xepapadeas, Anastasios, 1994. "Environmental Policy Under Oligopoly with Endogenous Market Structure," CEPR Discussion Papers 955, C.E.P.R. Discussion Papers.
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  9. Emmanuel Petrakis & Anastasios Xepapadeas, . "To Commit or Not to Commit: Environmental Policy In Imperfectly Competitive Markets," Working Papers 0110, University of Crete, Department of Economics.
  10. Fischer, Carolyn & Bernard, Alain & Vielle, Marc, 2001. "Is There a Rationale for Rebating Environmental Levies?," Discussion Papers dp-01-31-, Resources For the Future.
  11. Lawrence H. Goulder & Ian W. H. Parry & Dallas Burtraw, 1996. "Revenue-Raising vs. Other Approaches to Environmental Protection: The Critical Significance of Pre-Existing Tax Distortions," NBER Working Papers 5641, National Bureau of Economic Research, Inc.
  12. Sterner, Thomas & Hoglund Isaksson, Lena, 2006. "Refunded emission payments theory, distribution of costs, and Swedish experience of NOx abatement," Ecological Economics, Elsevier, vol. 57(1), pages 93-106, April.
  13. Gérard Gaudet & Stephen W. Salant, 1991. "Uniqueness of Cournot Equilibrium: New Results From Old Methods," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 399-404.
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  27. Carolyn Fischer & Alan K. Fox, 2007. "Output-Based Allocation of Emissions Permits for Mitigating Tax and Trade Interactions," Land Economics, University of Wisconsin Press, vol. 83(4), pages 575-599.
  28. Lee, Sang-Ho, 1999. "Optimal Taxation for Polluting Oligopolists with Endogenous Market Structure," Journal of Regulatory Economics, Springer, vol. 15(3), pages 293-308, May.
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