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Relative Emission Standard versus Tax under Oligopoly: The Role of Free Entry

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Abstract

We compare the effects of an emission tax, and those of a relative emission standard, on welfare and pollution levels under oligopolistic market structures. We consider the cases where the number of firms is fixed and where there is free entry and exit of firms. When the number of firms is fixed, (i) a relative emission standard is welfare-superior to an emission-equivalent emission tax, and (ii) an emission tax is emission-superior to a welfare-equivalent relative emission standard. Under free entry and exit, the results are just the opposite when the inverse demand function is concave.

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Authors and Affiliations

  1. Department of Economics, Southern Illinois University, Carbondale, IL, 62901-451, U.S.A

    Sajal Lahiri

  2. Institute of Social and Economic Research, Osaka University, Osaka, 567-0047, Japan

    Yoshiyasu Ono

Authors
  1. Sajal Lahiri
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  2. Yoshiyasu Ono
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Correspondence to Sajal Lahiri.

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Lahiri, S., Ono, Y. Relative Emission Standard versus Tax under Oligopoly: The Role of Free Entry. J Econ 91, 107–128 (2007). https://doi.org/10.1007/s00712-006-0243-1

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  • DOI: https://doi.org/10.1007/s00712-006-0243-1

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