A BEJTE Contributions article.

Abstract

This paper examines ways of taxing monopolistically competitive firms that pollute the environment. There are two sources of welfare loss: production externalities and product selection bias associated with fixed costs. We argue that the optimal firm specific tax is always, strictly speaking, less than the Pigouvian tax and that furthermore, under some circumstances, both Pigouvian and optimal taxes leave the monopolistically competitive industry with too few firms. Under either regime, however, the tax targets the right firms.

Submitted: December 23, 2004 · Accepted: May 17, 2005 · Published: May 19, 2005

Originally published in Contributions to Theoretical Economics.

Recommended Citation

Vetter, Henrik (2005) "Pollution Taxes for Monopolistically Competitive Firms," Contributions to Theoretical Economics: Vol. 5 : Iss. 1, Article 2.
Available at: http://www.bepress.com/bejte/contributions/vol5/iss1/art2