Tuesday 11
Industrial Organization
Damien Gaumont
› 11:30 - 12:00 (30min)
› 605
Emission Taxes, Relocation, and Quality Differences
Laura Birg  1, *@  , Jan Voßwinkel@
1 : University of Göttingen
* : Corresponding author

This paper studies the effect of an emission tax on the relocation decision of firms, when a duopolistic market is characterized by vertical quality differentiation. Especially, we establish the relationship between quality difference, relocation cost and marginal damage of emissions in a two-country-setting for three cases: An environmental tax applied only by one country, uncoordinated environmental taxation in both countries, and coordinated environmental taxation. The Nash-equilibria of relocation choices depend discontinuously on the cost of relocation φ and the quality difference λ. The higher the quality difference is, the higher is the probability that at least one firm relocates to F. A lower marginal damage increases the area of λ and φ where both firms remain in H. If also the foreign country F applies an emission tax and both governments set taxes uncooperatively, the high quality firm never relocates to F in equilibrium.

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