Emission quota versus emission tax in a mixed duopoly

摘要

Emission taxes are compared with emission quotas in a mixed and, after privatization, a pure duopoly. Previous studies have shown that in a mixed duopoly, direct regulation is superior to indirect regulation, regardless of the degree of partial privatization. These findings were reached on the basis that direct regulation was regarded as an emission standard in which the government sets the uniform abatement effort of each firm, and indirect regulation was regarded as an emission tax. This study considers another indirect regulation: an emission quota that the regulator sets for each firm uniformly or differentially. We show that in a mixed duopoly, a differentiated emission quota does more to improve welfare than an emission tax. In a comparison of the emission tax with a uniform emission quota, the superiority of environmental regulations in terms of social welfare depends on the parameters of the cost functions.