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Regulating a Polluting Oligopoly: Emission Tax or Voluntary Agreement?

Maia David

No 2004/07, Working Papers from INRA, Economie Publique

Abstract: This paper compares, in a polluting oligopoly, an emission tax and a form of environmental policy called voluntary agreement (VA). There are here two ways of reducing pollution: output contraction and endof- pipe abatement. Given the imperfect competition, firms' reaction to the tax is sub-optimal. They reduce output excessively in order to raise the price and do not abate enough. The VA is a take-it-or-leaveit contract on abatement effort, offered to the firms with the threat of a tax. It has a limited effect on output and always allows higher abatement than the tax. We find that this kind of VA may be more efficient than the tax in a concentrated industry, when pollution is not too harmful and when the abatement technology is rather efficient and cheap.

Keywords: Pollution; regulation (search for similar items in EconPapers)
JEL-codes: H23 L13 L51 Q48 (search for similar items in EconPapers)
Date: 2004-10-20
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Journal Article: Regulating a Polluting Oligopoly: Emission Tax or Voluntary Agreement? (2005) Downloads
Working Paper: Regulating a Polluting Oligopoly: Emission Tax or Voluntary Agreement? (2005)
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