Environmental policy and stable collusion: The case of a dynamic polluting oligopoly
We show that the imposition of a Markovian tax on emissions, that is, a tax rate which depends on the pollution stock, can induce stable cartelization in an oligopolistic polluting industry. This does not hold for a uniform tax. Thus, accounting for the feedback effect that exists within a dynamic framework, where pollution is allowed to accumulate into a stock over time, changes the result obtained within a static framework. Moreover, the cartel formation can diminish the welfare gain from environmental regulation such that welfare under environmental regulation and collusion of firms lies below that under a laissez-faire policy.
Year of publication: |
2011
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Authors: | Benchekroun, Hassan ; Ray Chaudhuri, Amrita |
Published in: |
Journal of Economic Dynamics and Control. - Elsevier, ISSN 0165-1889. - Vol. 35.2011, 4, p. 479-490
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Publisher: |
Elsevier |
Keywords: | Pollution tax Oligopoly Cartel formation Coalition formation Differential game |
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