Abstract
This paper examines how product differentiation as well as strategic managerial delegation affects optimal emission tax rate, environmental damage and social welfare, under alternative modes of competition. It shows that, under pure profit maximization, the optimal emission tax rate is not necessarily decreasing in degree of product differentiation. Moreover, the impacts of delegation on the scope for the optimal emission tax rate to be lower for higher degree of product differentiation are very different under alternative modes of competition. Under price (quantity) competition, the equilibrium emission tax rate, environmental damage and social welfare are lower (higher) in the case of delegation.
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