Effect of green network and emission tax on consumer choice under discrete continuous framework

Charu Grover () and Sangeeta Bansal
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Charu Grover: University of Delhi

Environmental Economics and Policy Studies, 2021, vol. 23, issue 4, No 1, 666 pages

Abstract: Abstract The paper considers a discrete continuous model where consumers choose quality of the product they buy as well as its usage. The product has two quality dimensions, intrinsic quality and environmental quality, that are in conflict with each other. It analyzes a two-stage game in a vertically differentiated duopoly market, where firms choose intrinsic quality in the first stage, and compete in prices in the second stage. It examines the effects of green network, and environmental regulation in the form of an emission tax on equilibrium qualities, market share, and total emissions. It shows that while both green network effect and environmental regulation, individually, improve the overall environmental quality, the effect is stronger when the tax is imposed in the presence of green network effect. Though an increase in green network effect reduces environmental quality of both firms, the market share of the cleaner firm rises at the expense of the other firm, resulting in an overall improvement of the environment. In the presence of green network effect, an emission tax improves environmental quality of both firms with market shares unaltered, thereby resulting in a reduction in total emissions. The green network effect enhances the effect of an emission tax. We also find that the environmental friendly firm benefits from the green network effect. The optimal tax is increasing in the network effect.

Keywords: Conflicting quality dimensions; Discrete-continuous; Emission tax; Green network effect; Vertical differentiation (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s10018-021-00312-y

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