RT info:eu-repo/semantics/article
T1 Efficiency-Inducing Policy for Polluting Oligopolists
A1 Martín-Herrán, Guiomar
A1 Rubio, Santiago J.
AB This paper characterizes an efficiency-inducing policy for a polluting oligopoly whenpollution abatement is technologically feasible, and when environmental damage dependson the pollution stock. Using a dynamic policy game between the regulator and theoligopolists, we show that a tax-subsidy scheme can implement the efficient outcomeas a regulated market equilibrium. The scheme consists of a tax on production and asubsidy that can either be on abatement efforts or on abatement costs. Both schemesprescribe a different tax rule, but both implement the efficient outcome. If firms actstrategically, taking into account the evolution of the pollution stock when they decideon abatement and production, the subsidy reflects the divergence between the socialand private valuation of the pollution stock associated with the abatement decision.Consequently, the tax has to correct the two market failures associated with production:the market power of the firms and the negative externality caused by pollution. Usingan LQ (differential) policy game, we show that the tax increases with the pollution stockfor both schemes, and that the application of a subsidy on abatement costs leads to alaxer tax rule. Interestingly, it also yields a lower fiscal deficit at the steady state. Thus,from a fiscal perspective, the policy recommendation is the application of a subsidy onabatement costs.
SN 2153-0785
YR 2024
FD 2024
LK https://uvadoc.uva.es/handle/10324/70751
UL https://uvadoc.uva.es/handle/10324/70751
LA spa
NO Dynamic Games and Applications, 2022, vol. 14, p. 195-222
DS UVaDOC
RD 22-dic-2024