Pollution taxes and pollution abatement in an oligopoly supergame

This paper investigates the effects of an emissions tax on the incentives for oligopolists to acquire alternative pollution abatement technologies. The analysis is conducted in terms of a repeated game and it is demonstrated that there are circumstances in which the firms may reject the option of acquiring the pollution abatement equipment, even when this lowers their production costs. (C) 1996 Academic Press, Inc.