Klaus Conrad

Price Competition and Product Differentiation when Consumers Care for the Environment

Increasing environmental awareness may affect the pleasure of consuming a good for which an environmental friendly substitute is available. When deciding to buy differentiated products, a compromise is sometimes made between preferred characteristics of the good and its environmental properties. In this paper we investigate the market implication of product differentiation when customers are concerned about environmental aspects of the good. We use the spacial duopoly model to determine how environmental concern affects prices, product characteristics and market shares of the competing firms. Our analysis is based on a two-stage game where at the first stage each firm chooses the characteristic of its product. At the second stage each firm chooses its price. The unique equilibrium prices and market shares are affected by consumer awareness of the environment and by the higher costs for producing those goods. As for the Nash equilibria in the characteristics we find three equilibria depending on the parameter constellation. In order to find out whether the market functions in an optimal way we determined the choice of environmental characteristics by a welfare maximizing authority. The result of this analysis is that characteristics differ under private decision making and social one. It can be shown, however, that it is possible to choose environmental policy instruments in order to stimulate private firms to produce the social optimal qualities.

The economic benefits of public infrastructure

The impact of the provision of public infrastructure on private economic activity is examined. Using a flexible functional form of a cost function with public infrastructure as an additional extern...

The effect of emission taxes and abatement subsidies on market structure

Abstract Emission taxes and abatement subsidies are considered to be efficient measures for environment protection. The purpose of this paper is to quantify their effects on industry output, firm output and on the number of firms in the industry. Three types of market structure are under discussion: perfect competition, oligopoly and a dominant firm with a competitive fringe. It turns out that emission taxes and abatement subsidies affect the structure of the polluting industry in opposite ways while the effects on industrys emissions are similar in direction but different.

Ex post tests for short-and long-run optimization

Abstract The purpose of this paper is to develop tests of long-run equilibrium models where the long-run is defined as the state where the observed levels of output and capital are consistent with optimizing behavior. We use the implied relationship between a restricted translog cost function and derived demand equations to provide a series of nested tests which can be interpreted as ex post tests for short- and long-run optimization behavior. A set of parameter restrictions on the translog system are specified for testing whether observable levels of capital and/or output of a firm correspond to the long-run optimal level. Our tests of the validity of long-run equilibrium specifications are based on data for 28 German industries for the period 1960-1981. For most of the industries the set of restrictions implied by long-run equilibrium had to be rejected.

Carbon Taxes and Joint Implementation : An applied general equilibrium analysis for Germany and India

Germany has committed itself toreducing its carbon emissions by 25 percent in2005 as compared to 1990 emission levels. Toachieve this goal, the government has recentlylaunched an environmental tax reform whichentails a continuous increase in energy taxesin conjunction with a revenue-neutral cut innon-wage labor costs. This policy is supposedto yield a double dividend, reducing both, theproblem of global warming and high unemploymentrates. In addition to domestic actions,international treaties on climate protectionallow for the supplementary use of flexibleinstruments to exploit cheaper emissionreduction possibilities elsewhere. One concreteoption for Germany would be to enter jointimplementation (JI) with developing countriessuch as India where Germany pays emissionreduction abroad rather than meeting itsreduction target solely by domestic action. Inthis paper, we investigate whether anenvironmental tax reform cum JI providesemployment and overall efficiency gains ascompared to an environmental tax reformstand-alone. We address this question in theframework of a large-scale general equilibriummodel for Germany and India where Germany mayundertake JI with the Indian electricitysector. Our main finding is that JI offsetslargely the adverse effects of carbon emissionconstraints on the German economy. JIsignificantly lowers the level of carbon taxesand thus reduces the total costs of abatementas well as negative effects on labor demand. Inaddition, JI triggers direct investment demandfor energy efficient power plants produced inGermany. This provides positive employmenteffects and additional income for Germany. ForIndia, joint implementation equips itselectricity industry with scarce capital goodsleading to a more efficient power productionwith lower electricity prices for the economyand substantial welfare gains.

Resource and Waste Taxation in the Theory of the Firm with Recycling Activities

The management of solid waste has become an urgent problem in nations with a great population density. Accordingly, waste reduction through source reduction and recycling has become increasingly important. Our purpose is to show how prevention, recycling and disposal of waste could be part of a theory of the firm. We first derive efficient production functions from production processes with waste as a by-product. Waste obtained as new scrap can partially be recycled by using additional inputs in order to cut back the purchase of virgin material. Waste not completely recyclable will leave the firm as disposal which also entails cost to the firm. We use the dual cost function approach to develop a theory of the firm under solid residual management.Since the producer does not bear the full cost of disposal, there will be a bias toward virgin materials and away from recycling. The goal of the government is to stimulate the firms to recycle with respect to the preservation of exhaustible resources. An incentive to recycle is a tax on resources or on waste. In order to determine the tax levels the government maximizes welfare subject to the dynamic constraint for decumulation of land fill for waste deposits. This gives the user cost and its time profile for taxing waste disposal or virgin material.In a comparative statics analysis we compare the effect of taxes on waste vs. virgin material on effort to produce in a resource saving manner, on the quantity of recycled material, on output, and on the reduction of waste. Since the impact of environmental regulation on employment is important, our model detects seven effects on labor demand as part of resource conservation policy. We finally carry out a comparative statics analysis of waste intensive firms operating in different market structures. Of interest is the impact of a resource or waste taxation on market volume, on the number of firms, on resource saving effort, and on profit.

The US market for SO2 permits: Policy implications of the low price and trading volume

Abstract The price of SO2 permits and the volume of trading under the US Acid Rain Program have been lower than expected. This can be explained by the creation and distribution of more permits than were initially authorized, by the sale of permits by high cost abaters who are subject to more stringent local emission constraints or who have irreversibly invested in high cost abatement technologies and by the deregulation of the natural gas and railroad industries which, in combination with incentives for cost-cutting under the new market approach to SO2 control, has lowered marginal costs of abatement curves and made them more uniform across powerplants. The low price of permits and low trading volume are evidence that market approaches to pollution control can be more cost-effective than command and control regulations. The effect of public policies and technological changes on the allowance market are usefully examined in the context of an ideal market, in which the equilibrium price of allowances equals the marginal cost of abatement of individual powerplants. Using recent data from Coggins and Swinton (1996), we are able to explain the current price of permits with some accuracy.

Optimal environmental policy for oligopolistic industries under intra-industry trade

Protecting the environment has always had implications for international trade. In recent years, as global warming and other environmental concerns have multiplied, environmental issues have played an increasing role in trade negotiations. Negotiating environmental regulations mutilaterally is especially problematic because of differences in preferences, in income levels or in production cost across countries. In addition, environmental considerations can be used to disguise protectionist policies.1 Since firms located in their home countries are predominantly owned by its residents, policies that increase home firms’ profits at the expense of foreign firms look attractive to policy-makers. National governments in a number of countries consider including in their arsenal of industry and trade policies such items as subsidies for R & D in cleaner technologies and products, subsidies for abatement activities, or taxes on emissions combined with subsidies for inputs heavily taxed by emission taxes (e.g. coal). An example for such a package of instruments would be a CO2 emission tax in Germany together with the present subsidy of DM 260 (

The control of CO2 emissions and its economic impact: An AGE model for a german state

150) per ton of hard coal. The endorsement in 1985 by President Reagan of a

The impact of environmental regulation on productivity in German industries

2.5 billion, 5-year effort to find cleaner methods of burning coal is another example.