Corporate Social Responsibility and Optimal Pigouvian Taxation

We formally study Pigouvian taxation in a duopoly market in which a CSR firm interacts with a profit maximizing firm. Unlike previous literature, we consider three different scenarios: (i) the CSR firm acts as a consumer-friendly firm, cares for not only its profits but also consumer surplus, as a proxy of its concern for its "stakeholders" or consumers; (ii) the CSR firm main objective is a combination of its own profit and the environment, caring for the environmental damage produced by the market in which it interacts; and (iii) the CSR firm is both consumer and environmental friendly. Finally, we compare the different Pigouvian rules derived with the first best competitive market solution and the monopoly/duopoly second best solutions.