Efficiency Inducing Tax for a Common Property Oligopoly

Larry Karp

Economic Journal, 1992, vol. 102, issue 411, 321-32

Abstract: The author characterizes the Markov perfect tax that induces a common property oligopoly to extract efficiently a nonrenewable resource. For linear and isoelastic demand, he provides closed-form expressions of the unique (specific) tax. Industry profits may be higher or lower in the oligopoly with the tax, relative to the competitive equilibrium with property rights. For linear or isoelastic demand, there exists no feasible open-loop tax that induces efficient extraction. In this case, the policymaker gains no advantage from being able to make binding commitments. Copyright 1992 by Royal Economic Society.

Date: 1992
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