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Optimal pollution taxation in a Cournot duopoly

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  • R. Simpson

Abstract

It is well known that the optimal pollution tax in a competitive industry is equal to the marginal damage inflicted by the pollution. It has also been shown that the optimal pollution tax on a monopoly is less than the marginal damage. In this paper, I derive the optimal pollution tax for a Cournot duopoly. If firms have different production costs, the optimal tax rate may exceed the marginal damage. This is so because the tax may be an effective instrument for allocating production from the less to the more efficient firm. It is also shown that, if one firm has a positive most preferred pollution tax, the sum of consumer and producer surpluses will be declining in the tax at this level. Copyright Kluwer Academic Publishers 1995

Suggested Citation

  • R. Simpson, 1995. "Optimal pollution taxation in a Cournot duopoly," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 6(4), pages 359-369, December.
    • Handle: RePEc:kap:enreec:v:6:y:1995:i:4:p:359-369
    DOI: 10.1007/BF00691819
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    References listed on IDEAS

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