It is well known that uncertainty concerning firms costs as well as market power of the latter have to be taken into account in order to design and choose environmental policy instruments in an optimal way. As a matter of fact, in the most actual regulation settings the policy maker has to face both of these complications simultaneously. However, hitherto environmental economic theory has restricted itself to either of them when submitting conventional policy instruments to a comparative analysis. The article at hand accounts for closing this gap by investigating the welfare effects of emission standards and taxes against the background of uncertain emission control costs and a polluting asymmetric Cournot duopoly.
Asymmetric Cournot duopoly external diseconomies of pollution cost uncertainty emission standard emission tax