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Emission taxes vs. environmental standards under partial ownership arrangements

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  • Dong, Quan
  • Chang, Yang-Ming

Abstract

This paper analyzes two pollution control instruments, uniform taxes and absolute standards, when polluting firms engage in partial ownership arrangements (POAs). Specifically, we examine the case of a bilateral POA between competing firms in which both hold equity shares on each other's profits as silent investments. We show that taxes and standards are equally efficacious in affecting the firms' output decisions and pollution emissions. Compared to the social planner's solution, a bilateral POA results in suboptimal outcomes with lower industrial output and consumer surplus. Firm profits are higher and environmental quality improves (since emissions decline), but social welfare decreases. We compare the equilibrium results associated with two different types of POAs (bilateral vs. unilateral), and examine their differences in welfare implications for the choice of policy options between taxes and standards.

Suggested Citation

  • Dong, Quan & Chang, Yang-Ming, 2020. "Emission taxes vs. environmental standards under partial ownership arrangements," Research in Economics, Elsevier, vol. 74(3), pages 250-262.
    • Handle: RePEc:eee:reecon:v:74:y:2020:i:3:p:250-262
    DOI: 10.1016/j.rie.2020.07.005
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    1. Bárcena-Ruiz, Juan Carlos & Sagasta, Amagoia, 2021. "Environmental policies with consumer-friendly firms and cross-ownership," Economic Modelling, Elsevier, vol. 103(C).

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    More about this item

    Keywords

    Emission tax; Environmental standard; Ownership structure; Welfare implications;
    All these keywords.

    JEL classification:

    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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