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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Institution: | (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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