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Optimal emission tax with endogenous location choice of duopolistic firms

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Title: Optimal emission tax with endogenous location choice of duopolistic firms
Authors: Masako, Ikefuji Browse this author
Jun-ichi, Itaya Browse this author →KAKEN DB
Makoto, Okamura Browse this author
Keywords: Environmental policy
Issue Date: Apr-2013
Publisher: Graduate School of Economics and Business Administration, Hokkaido University
Journal Title: Discussion Paper, Series A
Volume: 257
Start Page: 1
End Page: 38
Abstract: This paper explores an optimal environmental tax policy when polluting firms strategically choose the location of their plants in a three-stage game. We examine how the relationship between the optimal environmental tax and the plant location choices of duopolistic firms affects the welfare of the home country. We show that even if the duopolistic firms are identical ex ante, an asymmetric equilibrium may emerge in which either of the two firms relocates its plant in the foreign country. We also show that despite the persistence of globalization, the firms move back their relocated plants to the home country, thus causing the resulting welfare to decline.
Type: bulletin (article)
Appears in Collections:Discussion paper > Series A

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