Optimal Emission Tax with Endogenous Location Choice of Duopolistic Firms

ISER Discussion Paper No. 762

24 Pages Posted: 11 Dec 2009

See all articles by Masako Ikefuji

Masako Ikefuji

University of Tsukuba

Jun-ichi Itaya

Hokkaido University - Division of Modern Economics and Management

Makoto Okamura

Hiroshima University - Economics

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Date Written: December 9, 2009

Abstract

This paper explores optimal environmental tax policy under which duopoly firms strategically choose the location of their plants in a simple three-stage game. We examine how the relationship between the optimal emission tax and the choice of location of duopoly firms affects the welfare of the home country. We characterize the relationship between the optimal emission tax and the fixed cost, depending on the degree of environmental damage from production.

Finally, we show the existence of asymmetric equilibrium in which either firm chooses relocation of its plant even if the duopoly firms are identical ex ante.

Keywords: Environmental policy, Relocation, Welfare

JEL Classification: H 23, L13

Suggested Citation

Ikefuji, Masako and Itaya, Jun-ichi and Okamura, Makoto, Optimal Emission Tax with Endogenous Location Choice of Duopolistic Firms (December 9, 2009). ISER Discussion Paper No. 762. Available at SSRN: https://ssrn.com/abstract=1520850 or http://dx.doi.org/10.2139/ssrn.1520850

Masako Ikefuji (Contact Author)

University of Tsukuba ( email )

Tsukuba University , Ibaraki Ken
Tsukuba, Ibaraki 305-8573, Ibaraki 3050006
Japan

Jun-ichi Itaya

Hokkaido University - Division of Modern Economics and Management ( email )

Sapporo 060-0809
Japan

Makoto Okamura

Hiroshima University - Economics ( email )

1-2-1 Kagamiyama
Higashi-Hiroshima
Japan

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