THE TIMING OF ENVIRONMENTAL TAX POLICY WITH A CONSUMER-FRIENDLY FIRM

This study considers a Cournot duopoly model with a consumer-friendly firm and analyzes the interplay between the strategic choice of abatement technology and the timing of government's commitment to the environmental tax policy. We show that the optimal emission tax under committed policy regime is always higher than that under non-committed one, but both taxes can be higher than marginal environmental damage when the consumer-friendliness is high enough. We also show that the emergence of a consumer-friendly firm might yield better outcomes to both welfare and environmental quality without the commitment to the environmental policy.