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Article
Optimal Environmental Taxation, R&D Subsidisation and the Role of Market Conduct
Finnish Economic Papers (2003)
  • Joanna Poyago-Theotoky, Loughborough University
Abstract

The paper examines the optimal environmental policy in a differentiated goods duopoly with either price- or quantity-setting firms, where firms invest in environmental R&D that reduces emissions. It is shown that in quantity (Cournot) competition, the emission tax is always lower than marginal damages. With price (Bertrand) competition, the emission tax is generally lower than marginal damages. However, for the case of very undifferentiated products, the emission tax is equal to marginal damages, that is, it approaches the first-best tax. Moreover, the Cournot emission tax is always lower than the Bertand emission tax. Concerning the R&D subsidy, the comparison crucially depends on the degree of product differentiation and the initial emissions coefficient.

Publication Date
2003
Citation Information
Joanna Poyago-Theotoky. "Optimal Environmental Taxation, R&D Subsidisation and the Role of Market Conduct" Finnish Economic Papers Vol. 16 Iss. 1 (2003)
Available at: http://works.bepress.com/joanna_poyago_theotoky/14/