Market distortions and optimal environmental policy instruments

Daiken Mori ()
Additional contact information
Daiken Mori: Rikkyo University

Journal of Regulatory Economics, 2017, vol. 52, issue 1, No 2, 24-36

Abstract: Abstract In practice, a market does not comprise only one type of firm, resulting in two distortions: negative externalities caused by pollution damage and pricing power enjoyed by dominant firms. This paper examines choice of environmental policy instruments (tax-centered, quota-centered, and mixed policy) in markets where multiple dominant firms are price makers and multiple fringe firms are price takers. Environmental policy is not necessarily applied to all firms or facilities. This study focuses on the situation where only dominant firms are objects of environmental policy because this situation best reflects actual policy instruments. Understanding whether abatement costs exceed the environmental damage is essential to determining the best policy. The major finding of the study is that deadweight loss is reduced if dominant firms adopt eco-friendly technology and the regulator increases the ratio of taxed dominant firms to all dominant firms. Additionally, mixed policy is efficient when market distortion as a result of pricing power decreases.

Keywords: Imperfect competition; Price regulation; Market distortions; Environmental policy (search for similar items in EconPapers)
JEL-codes: H23 L13 L51 Q58 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s11149-017-9331-0 Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:regeco:v:52:y:2017:i:1:d:10.1007_s11149-017-9331-0

Ordering information: This journal article can be ordered from
http://www.springer. ... on/journal/11149/PS2

DOI: 10.1007/s11149-017-9331-0

Access Statistics for this article

Journal of Regulatory Economics is currently edited by Menaham Spiegel

More articles in Journal of Regulatory Economics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().