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Linear Pigovian taxes and the optimal size of a polluting industry

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Listed:
  • Ross McKitrick
  • Robert A. Collinge

Abstract

Confusion surrounding the appropriateness of long-run considerations in effluent regulation has arisen in the literature and recently carried over into textbooks. We use a factor input model under oligopsony to show that, when firms can influence the level of marginal damages, a linear pollution tax does not satisfy the long-run entry-exit condition. Previous results to the contrary are shown to depend on restrictive assumptions. Efficient policy design requires a lump-sum refund or any one of various non-linear pricing schemes.

Suggested Citation

  • Ross McKitrick & Robert A. Collinge, 2000. "Linear Pigovian taxes and the optimal size of a polluting industry," Canadian Journal of Economics, Canadian Economics Association, vol. 33(4), pages 1106-1119, November.
    • Handle: RePEc:cje:issued:v:33:y:2000:i:4:p:1106-1119
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    Cited by:

    1. Yoshifumi Konishi & Nori Tarui, 2015. "Emissions Trading, Firm Heterogeneity, and Intra-industry Reallocations in the Long Run," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 2(1), pages 1-42.
    2. Nikula Harri, 2020. "Entry, exit, and instrument choice in environmental regulation," Working Papers 2026, Tampere University, Faculty of Management and Business, Economics.

    More about this item

    JEL classification:

    • Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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