| This paper investigates the case of a polluting firm with market power in both its product and factor markets. The model reveals that a combination of tax and offsetting subsidy implemented by the regulator would alleviate two of the three externalities present. Once the equilibrium outcome is established, the question of information available to the regulator is investigated. Finally, the model is enhanced by the use of adjustment costs to demonstrate the short term nature of the recommended public policy. |
