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Article Review: The Pigouvian Tax Rule in the Presence of an Eco-Industry

The article that I found was titled, “The Pigouvian Tax Rule in the Presence of an Eco-Industry by Alain-Desire Nimubona and Bernard Sinclair-Desgagne. It was written December 2005 so therefore I feel as though it’s pretty relevant to today’s market structure. It was submitted to a French, scientific journal and translated into English. My article review will be a summary of the ideas and points of the article. Arthur Pigou conducted a classical analysis of market failure and concluded that negative externalities caused by pollution would be internalized by the market it the polluters were to pay the tax equal to the marginal social cost of the pollution. This idea was derived under the condition of perfect competition. This study was then amended by Buchanan (1969) and Barnett (1980) for an imperfectly competitive market. They found that the tax should be lower than the marginal social cost of pollution because it is a trade off from the desire to provide abatement incentives and the necessity of preventing a larger reduction of output. The article showed that taxes targeting polluting emissions must adjust to the relative market power of environmental firms (on the abatement market) and polluters (on both the final good and the abatement markets). All things equal, there would be a relatively more concentrated and powerful eco-industry that warrants higher emission taxes.
The impact of more complex and realistic industry conditions, or privately informed and different environment firms, for example – on Pigouvian taxes and environmental regulation in general remains to be explored.

Works Cited:
Nimubona, Alain-Désiré, and Bernard Sinclair-Desgagné. "The Pigouvian Tax Rule in the Presence of an Eco-Industry." ECOLE POLYTECHNIQUE CENTRE NATIONAL DE LA RECHERCHE SCIENTIFIQUE (2005): n. pag. Print.

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