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Optimal emission taxation and the Porter hypothesis under Bertrand competition

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  • Flavio Delbono
  • Luca Lambertini

Abstract

Is socially efficient taxation conducive to the win‐win solution associated with the strong version of the Porter Hypothesis? Using a Bertrand duopoly yielding a continuum of Nash equilibria, we show that this is true for almost any level of environmental damage and equilibrium pricing strategy. We also prove that the only case in which no conflict arises between private and public incentives is where firms price at marginal cost. This finding suggests that coordination between environmental and competition authorities would be highly desirable.

Suggested Citation

  • Flavio Delbono & Luca Lambertini, 2022. "Optimal emission taxation and the Porter hypothesis under Bertrand competition," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 93(3), pages 755-765, September.
    • Handle: RePEc:bla:annpce:v:93:y:2022:i:3:p:755-765
    DOI: 10.1111/apce.12338
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    References listed on IDEAS

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    1. Flavio M. Menezes & Jorge Pereira, 2023. "Imperfect competition, emissions tax and the Porter hypothesis," Australian Institute for Business and Economics DP022023, School of Economics, University of Queensland, Australia.

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