Several papers have recently been published on the intertemporal properties of acarbon tax. Among them are Hoel (1992, 1993), Sinclair (1992, 1994), Ulph andUlph (1994), Wirl (1994, 1995), Wirl and Dockner (1995), Tahvonen (1995,1996), Farzin (1996), Farzin and Tahvonen (1996) and Hoel and Kverndokk(1996). These papers can be classified in two groups, depending on the approachfollowed by the authors. A first group formed by Hoel, Sinclair, Ulph and Ulph,Farzin, Farzin and Tahvonen, and Hoel and Kverndokk has focused on the optimal1 pricing of a non-renewable resource with environmental stock externalities. Thesecond group of authors has tried to capture the strategic features of the globalwarming problem, developing a model of long-term bilateral interaction between aresource-exporting cartel and a coalition of governments of resource-importingcountries.

In this framework, they have studied the strategic taxation of CO2emissions by the governments of the importing countries and thus have clarifiedwhich are the determinants of the carbon tax dynamics when the strategic behaviorof the agents is taken into account. Although much has been explained, onequestion, at least, remains puzzling. As Wirl (1995) pointed out, a carbon tax is apolicy instrument to correct for externalities associated with CO concentration but 2a carbon tax may also assist in reaping part of the cartel’s profits. This paperfocuses on this issue, investigating under what conditions a carbon tax wouldallow resource-importing country governments to appropriate part of the monopolyprofits.Our conclusions show that the tax defined by the Nash equilibrium is a neutralpigouvian tax — in the sense that the tax corrects only the market inefficiencycaused by the stock externality, and has no effect on the cartel’s monopoly power.Moreover, we find that part of the cartel’s monopoly profits may be reaped by thestrategic pigouvian taxation only if the coalition of importing countries has astrategic advantage. We show that in that case consumers’ welfare increases, andthe cartel’s profits and aggregate welfare decrease compared with the MarkovperfectNash equilibrium.

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We also clarify the result obtained by Tahvonen (1996),showing that when the resource cartel acts as the leader of the game, the feedbackStackelberg equilibrium is identical to the Markov-perfect Nash equilibrium.The paper is organized as follows: we present the global warming differentialgame in Section 2; Section 3 computes the Markov-perfect Nash equilibrium, andSection 4 the feedback Stackelberg equilibria. In Section 5 we develop acomparative analysis of the Nash equilibrium and the Stackelberg equilibrium in

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