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A Note on’Emissions Taxation in Durable Goods Oligopoly’Marco RunkelDepartment of Economics, University of Siegen, D-57068 Siegen, Germanyemail: runkel@wap-server.fb5.uni-siegen.deAbstract: This note corrects an error in the analysis of Goering/Boyce (1999) and extendstheir results. In this way, it refutes the claim that the durability of rented products plays adecisive role for the second-best emission taxation under imperfect competition.1. IntroductionIntuitively, one would expect that the second-best emission tax in an imperfectly com-petitive industry (the tax which maximizes the social welfare provided it is the onlyinstrument available) falls short of the marginal environmental damage (underinternal-ization) since it has to account for two distortion simultaneously: the environmentalexternality and the market power of the rms . However, in an interesting recent articleGoering/Boyce (1999) (hereafter referred to as G&B) argue this to be not necessarilytrue in a durable good oligopoly in which the products are rented. They claim thatthe optimal emission tax exceeds the marginal damage (overinternalization) if a) thedemand and the decay functions are linear, b) the emissions depend only on output andc) the production cost function exhibits increasing returns to durability (subsequently,the conditions a - c will be referred to as the GB-case). They explain this result by athird distortion only inherent in durable good markets, namely ’:::the ...