The Strategic Use of Abatement by a Polluting Monopoly

Arbeitspapier

This paper evaluates the effects of the lack of regulatory commitment on emission tax applied by the regulator, abatement effort made by the monopoly and social welfare comparing two alternative policy games. The first game assumes that the regulator commits to an ex-ante level of the emission tax. In the second one, in a first stage the regulator and the monopolist simultaneously choose the emission tax and abatement respectively, and in a second stage the monopolist selects the output level. We find that the lack of commitment leads to lower taxation and abatement that yield larger emissions and, consequently, a larger steady-state pollution stock. Moreover, the increase of environmental damages because of the increase in the pollution stock more than compensates the increase in consumer surplus and the decrease in abatement costs resulting in a reduction of social welfare. Thus, our analysis indicates that the lack of commitment has a negative impact of welfare although this detrimental effect decreases with abatement costs.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Nota di Lavoro ; No. 58.2016

Classification and Topics

• Classification: Wirtschaft ; Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies ; Monopoly; Monopolization Strategies ; Economics of Regulation ; Pollution Control Adoption and Costs; Distributional Effects; Employment Effects ; Environmental Economics: Technological Innovation
• Subject: Monopoly ; Commitment ; Emission Tax ; Abatement ; Stock Pollutant

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Martín-Herrán, Guiomar ; Rubio, Santiago J.
• Event: Veröffentlichung
• (who): Fondazione Eni Enrico Mattei (FEEM)
• (where): Milano
• (when): 2016

Further information

• Handle: http://hdl.handle.net/10419/149531
• Last update: 10.03.2025, 11:44 AM CET