Product Variety, Scale Economies, and Environmental Taxes

Vetter Henrik
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Vetter Henrik: Statsbiblioteket, hv@statsbiblioteket.dk

The B.E. Journal of Theoretical Economics, 2009, vol. 9, issue 1, 18

Abstract: We discuss how efficiently a unit tax deals with external damage problems when economies of scale characterize a monopolistically competitive market in which consumers' value product variety. It turns out that neither the number of varieties nor the quantity of each variety is at the optimum under a unit tax. Moreover, aggregate production costs are not minimized under a unit tax. For practical policy purposes, some results suggest that a Pigouvian tax can replace a tax taking into account monopoly. Our findings make this conclusion false when the number of firms is endogenous.

Keywords: external damage regulation; taxes; scale economics (search for similar items in EconPapers)
Date: 2009
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DOI: 10.2202/1935-1704.1541

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