The adverse effects of environmental policy in green markets

José L. Moraga and Noemí Padrón

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

Abstract: We model green markets in which purchasers, either firms or consumers, have higher willingness-to-pay for less polluting goods. The effectiveness of pollution reduction policies is examined in a duopoly setting. We show that duopolists' strategic behaviour may increase pollution levels. Maximum emission standards, commonly used in green markets, improve the environmental features of products. Nonetheless, overall pollution levels will rise because government regulation also affects market shares and boots firms' sales. Consequently, social welfare may be reduced. We also explore the effects of technological subsidies and product charges, including differentiation of charges.

Keywords: Emission standards; subsidies; product charges; vertically differentiated duopoly (search for similar items in EconPapers)
JEL-codes: L52 Q28 (search for similar items in EconPapers)
Date: 1998-11
New Economics Papers: this item is included in nep-env and nep-mic
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Persistent link: https://EconPapers.repec.org/RePEc:upf:upfgen:335

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