On Environmental Subsidy/Tax Policy with Heterogeneous Consumers: An Application of an Environmentally Differentiated Duopoly Model

Tsuyoshi Toshimitsu

No 38, Discussion Paper Series from School of Economics, Kwansei Gakuin University

Abstract: We apply a model of an environmentally differentiated duopoly to the analysis of environmental policy in the form of a subsidy/tax on consumers based on emission levels of products. More specifically, we consider environmental and welfare effects of subsidizing consumers who purchase environmental-friendly goods such as hybrid vehicles. Focusing on types of market coverage by heterogeneous consumers, we examine the issue in the cases of a Bertrand and a Cournot duopoly. In the case of full market coverage with a Bertrand duopoly, an environmental subsidy improves the environment and is socially optimal. However, in the case of partial market coverage, irrespective of mode of competition, the optimal policy depends on the magnitude of the marginal social valuation of environmental damage. That is, if the marginal social valuation of environmental damage is sufficiently large (small), an environmental tax (subsidy) is optimal. Furthermore, in the Bertrand duopoly case, the effect of subsidy on the environment is ambiguous, whereas in the Cournot duopoly case, the subsidy degrades the environment.

Keywords: Environmentally differentiated product; Environmental subsidy/tax; Green market; Bertrand and Cournot duopoly (search for similar items in EconPapers)
JEL-codes: D43 H23 L13 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2008-04, Revised 2008-04
New Economics Papers: this item is included in nep-agr, nep-ene, nep-env and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://192.218.163.163/RePEc/pdf/kgdp38.pdf First version, 2008 (application/pdf)

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:kgu:wpaper:38

Access Statistics for this paper

More papers in Discussion Paper Series from School of Economics, Kwansei Gakuin University Contact information at EDIRC.
Bibliographic data for series maintained by Toshihiro Okada ().