ENVIRONMENTAL-POLICY UNDER OLIGOPOLY WITH ENDOGENOUS MARKET-STRUCTURE

Emission taxes under both fixed-number oligopoly and endogenous market structure, which are the most relevant market structures for policy i ssues, are examined. In the latter case, and contrary to what is expec ted under imperfect competition, the optimal tax could exceed marginal external damages, which implies that externalities generated by oligo polistic firms could be optimally controlled by overinternalising envi ronmental damages. Under endogenous market structure, a scheme consist ing of a license fee and a second-best under-internalising emission ta x can increase social welfare as compared to the use of a single emiss ion tax exceeding marginal damages.