that the efficient solution can be implemented combining a tax on emissions and a subsidy on clean output. The tax is lower … than the environmental damages, and the subsidy is equal to the difference between the price and the marginal revenue. In … the second part of the paper, the second-best tax and subsidy are also calculated solving a two-stage policy game between …

same good with a technology that employs a polluting input and a clean technology. The second-best tax and subsidy are … output but does not affect the total output. On the other hand, the subsidy leads to the monopoly to reduce the dirty output … subsidy is used provided that the marginal cost of clean output is not very high, as a linear-quadratic specification of the …