Market power, private information, and the optimal scale of pollution permit markets with application to North Carolina's Neuse River
AbstractWe extend the analysis of optimal scale in pollution permit markets by allowing for both market power and private information. We characterize the total costs (abatement costs and damages) under market power and private information and compare them to total costs under competition. It is possible for both market power and private information to lead to lower total costs than competition, but generally the differences between the three market structures will be small. We also conduct an optimal scale analysis of nitrogen pollution from waste water treatment plants (WWTP) into North Carolina's Neuse River System. An economic model of damages and abatement costs is integrated with a hydro-ecological model of nitrogen flow through the Neuse. We determine the optimal number of trading zones and allocate the WWTP into these zones. Under the most likely regulatory scenario, we find cost savings of 1.55 million dollars per year under the optimal market design relative to the typical 303(d) regulation in which the WWTP are not allowed to trade.
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Bibliographic InfoArticle provided by Elsevier in its journal Resource and Energy Economics.
Volume (Year): 35 (2013)
Issue (Month): 3 ()
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Web page: http://www.elsevier.com/locate/inca/505569
Pollution permits; Market power; Water pollution; Optimal scale;
Find related papers by JEL classification:
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Costs; Distributional Effects; Employment Effects
- Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
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