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Cross-Country Emission Tax Effect of Mergers

In: Handbook of Merger Control and Environmental Policy

Author

Listed:
  • Luis Gautier

    (Universidad de Málaga, Departamento de Teoría e Historia Econòmica)

  • Mahelet G. Fikru

    (Missouri University of Science and Technology)

Abstract

Recent studies show that mergers among polluting firms could affect the regulatory landscape of the industry and trigger a policy change. Using a two-country model, this study examines the effect of a merger size, as measured by the number of merging firms, on the optimal emission tax of another country. We show that, if pollution damages are not too large, a decline in the size of a merger reduces production and profits in that country, which affords a larger tax in the other country due to smaller profit-shifting concerns. On the other hand, if pollution damages are extremely large, a reduction in the size of a merger in one country reduces production in that country, but it also reduces production and emissions in the other country. Thus, the latter can induce a smaller emission tax. The change in the emission tax in both scenarios is consistent with cooperative outcomes.

Suggested Citation

  • Luis Gautier & Mahelet G. Fikru, 2024. "Cross-Country Emission Tax Effect of Mergers," Natural Resource Management and Policy, in: Handbook of Merger Control and Environmental Policy, chapter 0, pages 207-223, Springer.
    • Handle: RePEc:spr:nrmchp:978-3-031-63549-6_11
    DOI: 10.1007/978-3-031-63549-6_11
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