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Pollution abatement subsidies and the eco-industry

Author

Listed:
  • Maia David

    (ECO-PUB - Economie Publique - INRA - Institut National de la Recherche Agronomique - AgroParisTech)

  • Bernard Sinclair-Desgagné

    (HEC Montréal - HEC Montréal, CIRANO - Centre Interuniversitaire de Recherche en Analyse des Organisations)

Abstract

This paper considers the combination of pollution taxes and abatement subsidies when some polluting firms procure their abatement goods and services from an oligopolistic eco-industry. The regulator must here cope with two simultaneous price distortions: one that comes from pollution and the other which is caused by the eco-industry's market power. In this context, we show that taxing emissions while subsidizing polluters' abatement efforts cannot lead to first-best, but the opposite occurs provided it is the eco-industry's output which is subsidized. When public transfers also create distortions, welfare can be higher if the regulator uses only an emission tax, but subsidizing abatement suppliers while taxing emissions remains optimal when the eco-industry is concentrated.

Suggested Citation

  • Maia David & Bernard Sinclair-Desgagné, 2010. "Pollution abatement subsidies and the eco-industry," Post-Print hal-01172938, HAL.
    • Handle: RePEc:hal:journl:hal-01172938
    DOI: 10.1007/s10640-009-9315-3
    as

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    References listed on IDEAS

    as
    1. Lerner, Abba P, 1972. "Pollution Abatement Subsidies," American Economic Review, American Economic Association, vol. 62(5), pages 1009-1010, December.
    2. Maia David & Bernard Sinclair-Desgagné, 2005. "Environmental Regulation and the Eco-Industry," Journal of Regulatory Economics, Springer, vol. 28(2), pages 141-155, September.
    3. Joan Canton & Antoine Soubeyran & Hubert Stahn, 2008. "Environmental Taxation and Vertical Cournot Oligopolies: How Eco-industries Matter," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 40(3), pages 369-382, July.
    4. Carlo Carraro & Gilbert E. Metcalf, 2001. "Behavioral and Distributional Effects of Environmental Policy," NBER Books, National Bureau of Economic Research, Inc, number carr01-1.
    5. Fullerton Don & Mohr Robert D., 2003. "Suggested Subsidies are Sub-optimal Unless Combined with an Output Tax," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 2(1), pages 1-20, January.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    INDUSTRIE; ECO-INDUSTRIE; SUBVENTION ENVIRONNEMENTALE; COMBINAISON D'INSTRUMENTS; ENVIRONMENT GOODS AND SERVICES INDUSTRY; PIGOUVIAN TAXES; POLLUTION ABATEMENT SUBSIDIES;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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