Phd seminar: Anneliese Krautkraemer

Payment for Environmental Services and pollution tax under imperfect competition

Coauthor: Sonia Schwartz

Discussants : Jean-Louis Combes, Lars Biesewig 

Abstract

In this paper, we analyse the second best Payment for Environmental Services (PES) design when it interacts with a Pigouvian tax under imperfect competition. We consider
farmers who face a choice between producing a conventional or an organic agriculture good. The regulator sets a Pigouvian tax on conventional agriculture as it generates
environmental damages, as well as a PES on uncultivated land as bu er strips favor biodiversity. The conventional agriculture sector is perfectly competitive whereas the
organic good sector is an oligopoly. We show that the second best level of the Pigouvian tax is higher than the marginal damage whereas the PES is lower than the marginal
bene t. We then introduce the marginal social cost of public funds (MCF) and show that the Pigouvian tax increases with the MCF while the PES decreases with the MCF
provided that demand for the conventional agriculture good is inelastic.

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