Strategic pigouvian taxation, stock externalities and polluting non-renewable resources

This paper uses Wirl's [Wirl, F., 1995. The exploitation of fossil fuel und er the threat of global warming and carbon taxes: A dynamic game approach. Environmental and Resource Economics, 5, 333-352.] model designed to analyz e the long-term bilateral interdependence between a resource-exporting cart el and a coalition of resource-importing country governments for investigat ing under what conditions a carbon tax would make it possible for the coali tion to appropriate part of the cartel's profits. The results show that the tax defined by the Markov-perfect Nash equilibrium is a neutral pigouvian tax - in the sense that it corrects only the market inefficiency caused by the stock externality. However, if the coalition acts as a Stackelberg lead er, the strategic pigouvian taxation allows importing countries to capture part of the cartel's profits. This transfer is the result of an initially l ower producer price in comparison with the value corresponding to the Nash equilibrium. The strategic advantage of the importing country governments r educes the discounted present value of the Marshallian aggregate surplus. ( C) 2001 Elsevier Science B.V. All rights reserved.