A BEJTE Topics article.

Abstract

We discuss how efficiently a unit tax deals with external damage problems when economies of scale characterize a monopolistically competitive market in which consumers' value product variety. It turns out that neither the number of varieties nor the quantity of each variety is at the optimum under a unit tax. Moreover, aggregate production costs are not minimized under a unit tax. For practical policy purposes, some results suggest that a Pigouvian tax can replace a tax taking into account monopoly. Our findings make this conclusion false when the number of firms is endogenous.

Submitted: December 10, 2008 · Accepted: May 7, 2009 · Published: May 29, 2009

Recommended Citation

Vetter, Henrik (2009) "Product Variety, Scale Economies, and Environmental Taxes," The B.E. Journal of Theoretical Economics: Vol. 9 : Iss. 1 (Topics), Article 18.
DOI: 10.2202/1935-1704.1541
Available at: http://www.bepress.com/bejte/vol9/iss1/art18