The Korean Economic Review
Effects of Mixed Oligopoly and Emission Taxes on the Market and Environment
Woohyung Lee (Keimyung University) , Tohru Naito (Doshisha University) and Ki-Dong Lee (Keimyung University)Year 2017Vol. 33No. 2
The literature has mainly focused on the optimal emission tax rate to internalize the negative externalities of pollutants. Thus, we investigate firms’ technology adoption behavior under an emission taxation system. We also examine the possibility of using a welfare-maximizing public firm with eco-friendly production technology to reduce environmental damage. Private firms can choose clean or normal technology for their production process. The analysis indicates several main results. First, under the emission taxation system, private firms adopt clean technologies even though they bear additional abatement costs in the production process if environmental damage caused by their production process is large. Second, mixed oligopoly is socially desirable when environmental damage is low. Thus, private firms take normal technology. Finally, when private firms adopt clean technology, mixed oligopoly is better than emission taxes if environmental damage is low and if the market is less competitive from a social welfare perspective.