The timing of environmental tax policy with a consumer-friendly firm

Leal, Mariel and Garcia, Arturo and Lee, Sang-Ho (2018): The timing of environmental tax policy with a consumer-friendly firm. Forthcoming in: Hitotsubashi Journal of Economics , Vol. 59, No. 1 (2018)

Abstract

This study considers a Cournot duopoly model with a consumer-friendly firm and analyzes the interplay between the strategic choice of abatement technology and the timing of government’s commitment to the environmental policy. We show that the optimal emission tax under committed policy regime is always higher than that under non-committed one, but both taxes can be higher than marginal environmental damage when the consumer-friendliness is high enough. We also show that the non-committed policy will induce not only more outputs and higher profits but also more abatement and less emissions when the consumer-friendliness is high and the efficiency of abatement technology is not so high. Thus, the emergence of a consumer-friendly firm might yield better outcomes to both welfare and environmental quality without the commitment to the environmental policy.

• Item Type: MPRA Paper
• Language: English
• Keywords: abatement technology; commitment; consumer-friendly firm; environmental policy; emission tax
• Subjects: L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L13 - Oligopoly and Other Imperfect Markets; L - Industrial Organization > L3 - Nonprofit Organizations and Public Enterprise > L31 - Nonprofit Institutions ; NGOs ; Social Entrepreneurship; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics > Q58 - Government Policy

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