Pigouvian Taxes Under Oligopoly with Inter-Firm Externalities

18 Pages Posted: 30 Apr 2002

See all articles by Xiangkang Yin

Xiangkang Yin

Deakin University; Financial Research Network (FIRN)

Date Written: 2001


Pollution externalities between polluters should be taken into account in the design of optimal Pigouvian tax. When the externalities are substantial and/or the number of polluters is large, the effluent levies on these firms do not necessarily result in a deadweight loss. Rather, the tax can raise outputs and reduce the prices of final products if a marginal decline in a firm's emission leads to a greater aggregate reduction in other firms' marginal production costs than the increase in its own marginal cost. Under this condition, the second-best tax rate exceeds the marginal social cost of pollution.

Keywords: Pigouvian Tax, Oligopoly, Externality, Pollution

JEL Classification: H21, L13, Q38

Suggested Citation

Yin, Xiangkang, Pigouvian Taxes Under Oligopoly with Inter-Firm Externalities (2001). Available at SSRN: https://ssrn.com/abstract=301468 or http://dx.doi.org/10.2139/ssrn.301468

Xiangkang Yin (Contact Author)

Deakin University ( email )

Melbourne, Victoria

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane

HOME PAGE: http://www.firn.org.au

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