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Optimal environmental taxation, R&D subsidization and the role of market conduct

Joanna Poyago-Theotoky

No 200309, Discussion Paper Series, Department of Economics from Department of Economics, University of St. Andrews

Abstract: This paper examines the optimal environmental policy in a differentiated goods duopoly with either price- or quantity-setting firms, where firms invest in environmental R&D that reduces emissions. It is shown that in quantity (Cournot) competition, the emission tax is always lower than marginal damages. With price (Bertrand) competition, the emission tax is generally lower than marginal damages. However, for the case of very undifferentiate products, the emission tax is equal to marginal damages, that is it approaches the first-best tax. Moreover, the Cornot emission tax is always lower than the Bertrand emission tax. Concerning the R&D subsidy, the comparison crucially depends on the degree of product differentiation in the initial emissions coeffiecient.

Keywords: environmental R&D; emission tax; R&D subsidy; differentiated goods; Cournot competition; Bertrand competition. (search for similar items in EconPapers)
JEL-codes: Q28 O38 H29 L13 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ino and nep-pbe
Date: 2003-12-15
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