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Environmental Policies, Mergers and Welfare

Author

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  • Mahelet G. Fikru

    (Assistant Professor, Department of Economics, Missouri University of Science and Technology. Rolla, MO. USA.)

Abstract

Unlike previous theoretical studies, we examine the welfare effects of a merger when participating firms are in a pollution-intensive sector. With passive environmental policy we show that profitable mergers reduce welfare; and this is because the reduction in consumer surplus and tax revenue dominates any rise in profit and utility. On the contrary, with active policies we show that profitable mergers are welfare enhancing due to lower gross pollution, higher consumer surplus, lower tax costs and efficiency gains. The results imply that though environmental policies are adopted for the primary purpose of reducing pollution, such policies may have a negative effect on social welfare if they do not take into account the market structure and competitiveness of sectors.

Suggested Citation

  • Mahelet G. Fikru, 2013. "Environmental Policies, Mergers and Welfare," Economía Mexicana NUEVA ÉPOCA, CIDE, División de Economía, vol. 0(2), pages 449-461, July-Dece.
  • Handle: RePEc:emc:ecomex:v:22:y:2013:i:2:p:449-461
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    References listed on IDEAS

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    Cited by:

    1. Luis Gautier & Mahelet G. Fikru, 2024. "Welfare Impact of New Firm Acquisition," Natural Resource Management and Policy, in: Handbook of Merger Control and Environmental Policy, chapter 0, pages 105-132, Springer.
    2. Luis Gautier & Mahelet G. Fikru, 2024. "Mergers in Cournot Markets with Environmental Externality and Product Differentiation," Natural Resource Management and Policy, in: Handbook of Merger Control and Environmental Policy, chapter 0, pages 21-46, Springer.

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    More about this item

    Keywords

    end-of-the-pipe type abatement; environmental policy; merger; pollution intensity; welfare.;
    All these keywords.

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L4 - Industrial Organization - - Antitrust Issues and Policies
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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