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Optimal emission tax with endogenous location choice of duopolistic firms

Author

Listed:
  • Masako, Ikefuji
  • Jun-ichi, Itaya
  • Makoto, Okamura
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.

Suggested Citation

  • Masako, Ikefuji & Jun-ichi, Itaya & Makoto, Okamura, 2013. "Optimal emission tax with endogenous location choice of duopolistic firms," Discussion paper series. A 257, Graduate School of Economics and Business Administration, Hokkaido University.
    • Handle: RePEc:hok:dpaper:257
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    File URL: http://hdl.handle.net/2115/52724
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    File URL: https://eprints.lib.hokudai.ac.jp/dspace/bitstream/2115/52724/1/Discussion%20Paper%2cSeriesA%2cNo.2013-257.pdf
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    Cited by:

    1. Francesca Sanna-Randaccio & Roberta Sestini & Ornella Tarola, 2017. "Unilateral Climate Policy and Foreign Direct Investment with Firm and Country Heterogeneity," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 67(2), pages 379-401, June.

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