Pollution tax and social welfare in oligopoly: asymmetric taxation of identical polluters. Discussion Paper, Faculty of Economics, Kyushu Sangyo University. http://www.bepress.com/bejte/vol7/iss1/art17 12 Taxes versus Permits in a Two-Stage Duopoly

Abstract We study asymmetric pollution taxation on identical pol-luting oligopolists engaged in Cournot competition. It has been stud-ied that an identical ¯rms must be treated symmetrically and that the second-best pollution tax is a uniform tax. But, asymmetric treatment of identical ¯rms generates an aggregate cost-saving e®ect, which is oligopoly-speci¯c property. We consider a manipulation of the uniform tax vector without changing the total emissions which will be emitted under the uniform pollution tax. We derive a su±cient condition that guarantees that unequal taxation on ex ante identical polluters increases welfare. We show that if the su±cient condition is satis¯ed, unequal emission standards as well as unequal taxation increases welfare