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Permit markets, market power, and the trade-off between efficiency and revenue raising

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  • Antelo, Manel
  • Bru, Lluís

Abstract

This paper focuses on an emissions permit market dominated by one firm and with a government concerned about social efficiency and permits revenue. In this setting, it is shown that the dominant firm's market power reduces the opportunities for the government to raise non-distortionary revenue from permits without loss of consumer surplus. Since the government's objectives are thus hampered in auctioning permits, the dominant firm should be excluded from the auction. Specifically, the regulator should sell permits directly, through bilateral negotiation, to the dominant firm, and auction off the remaining permits to the fringe firms.

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Bibliographic Info

Article provided by Elsevier in its journal Resource and Energy Economics.

Volume (Year): 31 (2009)
Issue (Month): 4 (November)
Pages: 320-333

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Handle: RePEc:eee:resene:v:31:y:2009:i:4:p:320-333

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Web page: http://www.elsevier.com/locate/inca/505569

Related research

Keywords: Emissions permit markets Dominant firm Efficiency-revenue dilemma Bargaining;

References

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  1. Cason, Timothy N. & Gangadharan, Lata & Duke, Charlotte, 2003. "Market power in tradable emission markets: a laboratory testbed for emission trading in Port Phillip Bay, Victoria," Ecological Economics, Elsevier, vol. 46(3), pages 469-491, October.
  2. Peter Cramton & Suzi Kerr, 2002. "Tradeable Carbon Permit Auctions: How and Why to Auction Not Grandfather," Papers of Peter Cramton 02eptc, University of Maryland, Department of Economics - Peter Cramton, revised 06 May 2002.
  3. Peter Cramton, 2000. "A Review of Markets for Clean Air: The U.S. Acid Rain Program," Papers of Peter Cramton 00jel, University of Maryland, Department of Economics - Peter Cramton, revised 31 Aug 2000.
  4. Matti Liski & Juan-Pablo Montero, 2005. "A Note on Market Power in an Emission Permits Market with Banking," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 31(2), pages 159-173, 06.
  5. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, December.
  6. Perry, Martin K, 1978. "Vertical Integration: The Monopsony Case," American Economic Review, American Economic Association, vol. 68(4), pages 561-70, September.
  7. Matti Liski & Juan-Pablo Montero, 2006. "On Pollution Permit Banking and Market Power," Journal of Regulatory Economics, Springer, vol. 29(3), pages 283-302, 05.
  8. Hahn, Robert W, 1984. "Market Power and Transferable Property Rights," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 99(4), pages 753-65, November.
  9. Andrew Muller, R. & Mestelman, Stuart & Spraggon, John & Godby, Rob, 2002. "Can Double Auctions Control Monopoly and Monopsony Power in Emissions Trading Markets?," Journal of Environmental Economics and Management, Elsevier, vol. 44(1), pages 70-92, July.
  10. Misiolek, Walter S. & Elder, Harold W., 1989. "Exclusionary manipulation of markets for pollution rights," Journal of Environmental Economics and Management, Elsevier, vol. 16(2), pages 156-166, March.
  11. Montero, Juan-Pablo, 2002. "Permits, Standards, and Technology Innovation," Journal of Environmental Economics and Management, Elsevier, vol. 44(1), pages 23-44, July.
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Cited by:
  1. Francisco Alvarez & Francisco J. André, 2013. "Auctioning vs. Grandfathering in Cap-and-Trade Systems with Market Power and Incomplete Information," Working Papers 2013.98, Fondazione Eni Enrico Mattei.

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