Discussion Paper No.2101

Abstract :
In the case of non-point source pollutions, the regulator is unable to observe individual emission levels of the firms, so based on the emission concentration, it charges uniform environmental tax or gives uniform re-ward to the firms. The regulator decides on the environmental standard and the tax rate. Assuming these quantities given, in optimizing their profits the firms select optimal abatement technologies and output levels simultaneously. A Cournot duopoly is examined in the paper where each firm faces a two-dimensional decision variable and selects Nash equilib-rium strategies. The equilibrium is determined and a comparative analysis is performed between maximum prices, abatement technologies, equilib-rium output levels and prices. If the firms are homogeneous, then ambient charges can control the emission concentration, and in the case of hetero-geneous firms conditions are given for the effectiveness of the ambient charges.

Keywords : Environmental policy, Ambient charge, Cournot compe-tition, Two-stage game, Non-point cource pollution