Environmental Policy Under Oligopoly with Endogenous Market Structure

Yannis Katsoulacos and Anastasios Xepapadeas

No 955, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Emission taxes under oligopoly with both fixed number and endogenous market structure (perhaps the most relevant market structures for policy issues) are examined. In the latter case, and contrary to what is expected under imperfect competition, the optimal tax could exceed marginal external damages, which implies that externalities generated by oligopolistic firms could be optimally controlled by over-internalizing environmental damages. Under endogenous market structure, a scheme consisting of a licence fee and a second-best under-internalizing emission tax can increase social welfare when compared with the use of a single emission tax exceeding marginal damages.

Keywords: Endogenous Market Structure; Externalities; Oligopoly; Pigouvian Taxes (search for similar items in EconPapers)
JEL-codes: D43 D62 H21 (search for similar items in EconPapers)
Date: 1994-05
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Citations: View citations in EconPapers (5)

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