The Signaling Effect of Emission Taxes Under International Duopoly

Akira Miyaoka ()
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Akira Miyaoka: Kansai University

Environmental & Resource Economics, 2019, vol. 72, issue 3, No 5, 720 pages

Abstract: Abstract We analyze equilibrium emission taxes under international Cournot duopoly in the presence of asymmetric information between firms. When each firm does not know the production cost of its rival located in the other country, the government of each country can use its emission tax as a signal of the competitiveness of its domestic firm. We show that, owing to this signaling effect, the equilibrium emission tax and expected welfare of each country can be higher than those under symmetric information between firms or even higher than those obtained if the governments were to non-strategically set the tax rate equal to the (expected) marginal damage from pollution (i.e., the Pigouvian tax level). Our results suggest that the presence of asymmetric information between firms can mitigate a “race to the bottom” in strategic environmental policymaking.

Keywords: Strategic environmental policy; Emission taxes; Signaling; Cournot duopoly; Race to the bottom (search for similar items in EconPapers)
JEL-codes: D82 F12 F18 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1007/s10640-018-0220-5

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