In this paper we analyze a simple environmental tax in Edgeworth-Bertrand duopoly with soft capacity constraints and argue that the mode of strategic interaction is co-determined by taxation. Although the capacity constraint gives rise to a non-convexity it is possible to find efficient taxes....

We investigate how carbon taxes combined with output-based rebating (OBR) in an open economy perform in interaction with the carbon policies of a large neighboring trading partner. Analytical results suggest that whether the purpose of the OBR policy is to compensate firms for carbon tax burdens...