Environmental Taxation and Vertical Cournot Oligopolies: How Eco-industries Matter |
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Authors: | Joan Canton Antoine Soubeyran Hubert Stahn |
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Affiliation: | (1) Department of Economics, University of Ottawa, 55, Laurier Avenue East, Ottawa, ON, Canada, K1N 6N5;(2) GREQAM, Université de la Méditerranée, Chateau Lafarge, route des Milles, 13290 Les Milles, France |
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Abstract: | This article specifies what an optimal pollution tax should be when dealing with a vertical Cournot oligopoly. Polluting firms sell final goods to consumers and outsource their abatement activities to an environment industry. It is assumed that both markets are imperfectly competitive. Thus, the tax is a single instrument used to regulate three sorts of distortions, one negative externality and two restrictions in production. Consequently, the optimal tax rate is the result of a trade-off that depends on the firms’ market power along the vertical structure. A detailed analysis of Cournot-Nash equilibria in both markets is also performed. In this context, the efficiency of abatement activities plays a key-role. It gives a new understanding to the necessary conditions for the emergence of an eco-industrial sector. |
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Keywords: | Eco-industry End-of-pipe pollution abatement Environmental taxation Vertical Cournot oligopolies |
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