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Endogenous timing in private and mixed duopolies with emission taxes

Lee, Sang-Ho and Xu, Lili (2017): Endogenous timing in private and mixed duopolies with emission taxes. Forthcoming in: Journal of Economics , Vol. 124, No. 1 (2018)

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Abstract

This paper examines an endogenous timing game in product differentiated duopolies under price competition when emission tax is imposed on environmental externality. We show that a simultaneous-move (sequential-move) outcome can be an equilibrium outcome in a private duopoly under significant (insignificant) environmental externality, but this result can be reversed in a mixed duopoly. We also show that when environmental externalities are significant, public leadership yields greater welfare than private leadership, and that public leadership is more robust than private leadership as an equilibrium outcome. Finally, we find that privatization can result in a public leader becoming a private leader, but this worsens welfare.

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