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Unpublished Paper
Optimal Environmental Policy under Monopolistic Provision of Clean Technologies
MPRA Paper No. 28837, posted 13. February 2011. (2011)
  • Keisuke Hattori
Abstract
In this paper, we characterize optimal environmental policy in a case where innovation in clean production technologies is developed and provided by a monopoly. Two policy instruments are considered: an emission tax on downstream polluting firms and an R& D subsidy for an upstream innovator in clean technologies. We find that (i) a higher emission tax may increase (decrease) R&D investment when the burden of the tax payment in the polluters’ marginal costs and the price-elasticity of the demand for polluting goods are rather small (large), (ii) the social optimum can be achieved by the combined implementation of an emission tax that is smaller than an ex-ante Pigouvian rate and a subsidy that is equal to the rate of emission reduction due to the new technology, and (iii) if the policy instrument is limited to the emission tax, the second-best tax rate lies between the first-best rate and the ex-ante Pigouvian rate. We test our model by numerical simulation and demonstrate the possibility of a type of “double dividend” due to the emission tax. Three extensions of the model are then considered: Cournot competition in the polluting industry, a subsidy to polluters who adopt the new technology, and technology spillovers.
Keywords
  • Environmental taxes,
  • R&D,
  • Environmental damages,
  • Patent
Publication Date
2011
Citation Information
Keisuke Hattori. "Optimal Environmental Policy under Monopolistic Provision of Clean Technologies" MPRA Paper No. 28837, posted 13. February 2011. (2011)
Available at: http://works.bepress.com/hattori/9/