Time structure of emissions and comparison between the optimal emission taxes under renting and under selling in durable goods oligopolies

Amagoia Sagasta and José M. Usategui
The Manchester School

We compare the optimal emission taxes on selling firms and on renting firms in a model of a durable-goods oligopoly considering three types of emissions: emissions at production, emissions during use and emissions at disposal. We find that the optimal emission tax in the present may be lower when firms sell their output than when they rent their output if emissions are during use or at the disposal of the good. When emissions occur at production that optimal emission tax is higher on selling firms than on renting firms. Moreover, the total expected optimal emission tax per unit produced in the present is higher on selling firms than on renting firms for any of the three types of emissions considered. We provide intuition for these results.

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