The Impact of Environmental Taxes on Firm’s Technology and Entry Decisions

Ana Espinola-Arredondo and Boying Liu
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Boying Liu: School of Economic Sciences, Washington State University

No 2014-4, Working Papers from School of Economic Sciences, Washington State University

Abstract: This paper investigates conditions under which the regulator can strate- gically set an emission fee as a tool to induce Örms to adopt a green tech- nology and, also, promote (or hinder) entry deterrence. We consider a market in which a monopolistic incumbent faces the threat of entry, and Örms can choose between a dirty and a green technology. Our results show that, despite the fact of facing a polluting incumbent, an entrant might Önd it proÖtable to join the market and acquire a clean technology if the environmental tax is stringent enough and the technology is e§ective eliminating pollution. We also demonstrate that a duopoly, in which all Örms acquire green technology, is socially optimal if the technology cost is low and the environmental damage is su¢ ciently high. However, if the environmental damage is low, a partially clean duopoly (in which only one Örm adopts the green technology) is socially optimal under less restrictive conditions on the cost of clean technology

Keywords: Adoption; Market Structure; Emission ta (search for similar items in EconPapers)
JEL-codes: H23 L12 Q58 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2014-10
New Economics Papers: this item is included in nep-ene, nep-env and nep-res
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