Emission taxes and market structure

  • Yiannis Katsoulacos
  • Anastasios Xepapadeas
Part of the Economics, Energy and Environment book series (ECGY, volume 4)


Emission taxes (or effluent fees), along with emission controls and tradable permits, have emerged as one of the most important instruments for correcting environmental externalities. Emission taxes internalize the external damages associated with polluting activities. The internalization is complete when the fees equal the marginal external damages of pollution, such as in the case of Pigouvian taxes. It has been shown, however, that the socially optimal degree of internalization depends on the market structure. Under perfect competition, the desired internalization is complete (e.g., Baumol and Oates, 1988), while under imperfectly competitive conditions, optimal taxes deviate from external damages, as was first noted by Buchanan (1969) for the case of monopoly. Complete internalization of external damages created by a monopolist, will impose additional social cost by further restricting the already suboptimal output of the monopolist. In this case, the optimal effluent fee will be less than marginal external damages (Barnett, 1980; Misiolek, 1980).


Nash Equilibrium Market Structure Marginal Abatement Cost Free Entry Marginal Damage 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Barnett, A.H. (1980), “The Pigouvian Tax Rule under Monopoly”, American Economic Review 70 (5), 1037–1041.Google Scholar
  2. Baumol, W.J. and W.E. Oates (1988), The Theory of Environmental Policy, Cambridge University Press, Cambridge.CrossRefGoogle Scholar
  3. Buchanan, J.M. (1969), “External Diseconomies, Corrective Taxes and Market Structure”, American Economic Review 59 (1), 174–177.Google Scholar
  4. Carraro, C. and A. Soubeyran (1993), “Environmental Policy and the Choice of Production Technology”, EAERE 4th Annual Conference, Fontainebleau.Google Scholar
  5. Ebert, U. (1991/92), “Pigouvian Tax and Market Structure”, Finanz Archiv 49(2), 154–166.Google Scholar
  6. Ebert, U. (1992), “On the Effect of Effluent Fees under Oligopoly: Comparative Static Analysis”, Discussion Paper V-82–91, University of Oldenburg, Institute of Economics.Google Scholar
  7. Katsoulacos, Y. and A. Xepapadeas (1995), “Environmental Policy under Oligopoly with Endogenous Market Structure”, Scandinavian Journal of Economics, 97, 411–420.CrossRefGoogle Scholar
  8. Levin, D. (1985), “Taxation within Cournot Oligopoly”, Journal of Public Economics 27, 281–290.CrossRefGoogle Scholar
  9. Mankiw, N.G. and M.D. Whinston (1986), “Free-Entry and Social Inefficiency”, Rand Journal of Economics 17 (1), 48–58.CrossRefGoogle Scholar
  10. Misiolek, S.W. (1980), “Effluent Taxation in Monopoly Markets”, Journal of Environmental Economics and Management 7, 103–107.CrossRefGoogle Scholar
  11. Misiolek, S.W. (1988), “Pollution Control through Price Incentives: The Role of Rent Seeking Costs in Monopoly Markets”, Journal of Environmental Economics and Management 15, 18.CrossRefGoogle Scholar
  12. Oates, W.E. and D.L. Strassmann (1984), “Effluent Fees and Market Structure”, Journal of Public Economics 24, 29–46.CrossRefGoogle Scholar
  13. Requate, T. (1992), “Pollution Control under Imperfect Competition: Asymmetric Bertrand Duopoly with Linear Technologies”, University of Bielefeld, Institute of Mathematical Economics Working Paper No. 216.Google Scholar
  14. Spence, A.M. (1976), “Product Differentiation and Welfare”, American Economic Review 66, 407–414.Google Scholar
  15. Spulber, D.F. (1985), “Effluent Regulation and Long-Run Optimality”, Journal of Environmental Economics and Management 12, 103–116.CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media Dordrecht 1996

Authors and Affiliations

  • Yiannis Katsoulacos
    • 1
  • Anastasios Xepapadeas
    • 2
  1. 1.Athens University of Economics and Business and CERESGreece
  2. 2.Department of Economics and CERESUniversity of CreteGreece

Personalised recommendations