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Environmental Policy in a Linear City Model of Product Differentiation

Author

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  • Ana Espinola-Arredondo
  • Huan Zhao

    () (School of Economic Sciences, Washington State University)

Abstract

This paper analyzes how a tax/subsidy policy affects consumers? behavior when choosing between green (pollution free goods) and conventional products and its effects on welfare when some consumers have strong preferences for green goods. We develop a three stage complete information game, using the Hotelling?s linear city model. We show that when products are identical in all respects except in their environmental properties, a tax/subsidy policy performs better than the case without policy. Our efficiency comparisons suggest that under a setting of horizontal product differentiation a tax/subsidy (either on consumers or polluting ?firms) produces higher social welfare than the absence of policy. Moreover, the proportion of consumers who prefer green products affects the welfare gains from a subsidy or tax policy.

Suggested Citation

  • Ana Espinola-Arredondo & Huan Zhao, 2011. "Environmental Policy in a Linear City Model of Product Differentiation," Working Papers 2011-4, School of Economic Sciences, Washington State University.
  • Handle: RePEc:wsu:wpaper:espinola-9
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    File URL: http://faculty.ses.wsu.edu/WorkingPapers/AnaEspinola/WP2011-4.pdf
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    References listed on IDEAS

    as
    1. José Moraga-González & Noemi Padrón-Fumero, 2002. "Environmental Policy in a Green Market," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 22(3), pages 419-447, July.
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    Cited by:

    1. Ana Espínola-Arredondo & Félix Muñoz-García, 2016. "An excessive development of green products?," Economics of Governance, Springer, vol. 17(2), pages 101-129, May.
    2. Gori, Giuseppe Francesco & Lambertini, Luca, 2013. "Trade liberalisation between asymmetric countries with environmentally concerned consumers," Regional Science and Urban Economics, Elsevier, vol. 43(4), pages 549-560.
    3. Mantovani, Andrea & Tarola, Ornella & Vergari, Cecilia, 2016. "Hedonic and environmental quality: A hybrid model of product differentiation," Resource and Energy Economics, Elsevier, vol. 45(C), pages 99-123.
    4. Shizuka Nishikawa, 2015. "Regulating Cournot Oligopoly with Environmental Externalities," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 43(4), pages 449-462, December.

    More about this item

    Keywords

    Green products; environmental policy; horizontal product differentiation;

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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