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The Impact of Environmental Taxes on Firm’s Technology and Entry Decisions

Author

Listed:
  • Ana Espinola-Arredondo
  • Boying Liu

    (School of Economic Sciences, Washington State University)

Abstract

This paper investigates conditions under which the regulator can strate- gically set an emission fee as a tool to induce Örms to adopt a green tech- nology and, also, promote (or hinder) entry deterrence. We consider a market in which a monopolistic incumbent faces the threat of entry, and Örms can choose between a dirty and a green technology. Our results show that, despite the fact of facing a polluting incumbent, an entrant might Önd it proÖtable to join the market and acquire a clean technology if the environmental tax is stringent enough and the technology is e§ective eliminating pollution. We also demonstrate that a duopoly, in which all Örms acquire green technology, is socially optimal if the technology cost is low and the environmental damage is su¢ ciently high. However, if the environmental damage is low, a partially clean duopoly (in which only one Örm adopts the green technology) is socially optimal under less restrictive conditions on the cost of clean technology

Suggested Citation

  • Ana Espinola-Arredondo & Boying Liu, 2014. "The Impact of Environmental Taxes on Firm’s Technology and Entry Decisions," Working Papers 2014-4, School of Economic Sciences, Washington State University.
    • Handle: RePEc:wsu:wpaper:espinola-16
    as

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    File URL: http://faculty.ses.wsu.edu/WorkingPapers/AnaEspinola/WP2014-4.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Adoption; Market Structure; Emission ta;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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