On Environmental Subsidy/Tax Policy with Heterogeneous Consumers: An Application of an Environmentally Differentiated Duopoly Model

We apply a model of an environmentally differentiated duopoly to the analysis of environmental policy in the form of a subsidy/tax on consumers based on emission levels of products. More specifically, we consider environmental and welfare effects of subsidizing consumers who purchase environmental-friendly goods such as hybrid vehicles. Focusing on types of market coverage by heterogeneous consumers, we examine the issue in the cases of a Bertrand and a Cournot duopoly. In the case of full market coverage with a Bertrand duopoly, an environmental subsidy improves the environment and is socially optimal. However, in the case of partial market coverage, irrespective of mode of competition, the optimal policy depends on the magnitude of the marginal social valuation of environmental damage. That is, if the marginal social valuation of environmental damage is sufficiently large (small), an environmental tax (subsidy) is optimal. Furthermore, in the Bertrand duopoly case, the effect of subsidy on the environment is ambiguous, whereas in the Cournot duopoly case, the subsidy degrades the environment.Environmentally differentiated product, Environmental subsidy/tax, Green market, Bertrand and Cournot duopoly

On the Effects of Emission Standards as Technical Barriers to Trade: A Foreign Duopoly Case

Employing an environmentally differentiated duopoly model, we analyze how emission standards affect imports, the environment, and social welfare. We show that a strict emission standard is not necessarily import-restrictive, whereas it may possibly degrade the environment. Furthermore, we present evidence that the effect of emission standards on net social surplus depends on the mode of market competition and the degree of marginal social valuation of environmental damage.emission standards, environmentally differentiated duopoly, green market

Unilateral Emission Standards, Quality of Vertically Differentiated Products, and the Global Environment

Employing an environmentally-differentiated products model with heterogeneous consumers in terms of environmental consciousness, this paper examines the effect of a unilateral change in a home emission standard on the qualities of products, aggregate emissions, and welfare of both home and foreign countries. When firms compete with each other in a Cournot fashion, as the home emission standard becomes stricter, aggregate emissions of both domestic and foreign countries decrease, if a firm which produces a gdirtier producthf supplies the same product to both domestic and foreign markets. On the other hand, if the firm supplies different products in environmental features to different markets, a stricter emission standard by the home government increases aggregate emissions of the foreign country. Even in the Bertrand duopoly case, the effects of a stricter emission standard on both countries could be different from each other.emission standards, international duopoly, environmentally differentiated products

Optimal Policy for Product R&D with Endogenous Quality Ordering: Asymmetric Duopoly

We examine the optimal R&D subsidy/tax policy under a vertically differentiated duopoly. In a significant departure from the existing work, we consider the case of asymmetric costs of product R&D where there is a small technology gap between firms. In our analysis, the endogeneity of quality ordering is explicitly taken into account. We show that the optimal policy is described by a firm-specific subsidy schedule that is contingent on firms' quality choices. The subsidy schedule not only corrects the distortion in product quality but also selects the socially preferred equilibrium. Both Bertrand and Cournot cases are analyzed.asymmetric duopoly, endogenous quality ordering, product R&D, R&D policy, vertical product differentiation

The Chocie of Optimal Protection and Oligopoly: Import Tariffs vs Production Subsidies

This paper analyzes the choice of import tariffs and production subsidies to provide optimal protection of domestic industry in the presence of oligopolistic competition, provided that there is a difference in costs between domestic and foreign firms. We show that the choice of optimal protection depends both on the difference in firms' costs and the relative number of firms across countries. First, in the case that the number of foreign firms is larger, an optimal protection is a production subsidy, regardless of the difference in costs. Second, in the case that the number of foreign firms is equal to, or less than that of domestic firms, an import tariff provides optimal protection if the difference in costs is large, while a production subsidy provides optimal protection if the differece in costs is small.

ON THE ENDOGENOUS TIMlNG IN TRADE POLICY GAMEFA GENERAL CASE

This paper discusses the timing and the optimal trade policy in the presence of oligopolisitic industries and free entry. Collie (1994) proved that an importing government should not commit a countervailing duty in response to a foreign export subsidy. We show that his main conclusion does not always hold, since the timing, as well as the optimal trade policy, depends on the number of firms in both countries and the characteristic of the industry, i.e. no entry or free entry.

OPTIMAL EXPORT POLICY IN THE PRESENCE OF R&D INVESTMENT

The purpose of this paper is to analyze the optimal export policy in a two-stage game in which a domestic and a foreign firm compete in price and R&D investment. Under international Bertrand duopoly, an export subsidy directly promotes excess price competition, as delineated by Eaton and Grossman (1986). But, in the presence of international R&D rivalry, an export subsidy indirectly reduces the rival's R&D level, and thereby raises its cost. This effect offsets the negative effect of the export subsidy resulting in excess price competition. We show that an export subsidy (tax) policy is optimal if the relative return to R&D is great (small), provided that a government can precommit to an ex ante optimal export policy.