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On the Efficiency of Competitive Markets for Emission Permits

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Author Info
Eftichios Sartzetakis ()

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Abstract

It is typical for economists andpolicy makers alike to presume that competitivemarkets allocate emission permits efficiently.This paper demonstrates that competition in theemission permits market cannot assureefficiency when the product market isoligopolistic. We provide the conditions underwhich a bureaucratic mechanism is welfaresuperior to a tradeable emission permitssystem. Price-taking behaviour in the permitsmarket ensures transfer of licenses to the lessefficient in abatement firms, which then becomemore aggressive in the product market,acquiring additional permits. As a result, theless efficient firms end up with a higher thanthe welfare maximizing share of emissionpermits. If the less efficient in abatementfirms are also less efficient in production,competitive trading of permits may result inlower output and welfare. Copyright Kluwer Academic Publishers 2004

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File URL: http://hdl.handle.net/10.1023/B:EARE.0000016786.09344.d4
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Publisher Info
Article provided by European Association of Environmental and Resource Economists in its journal Environmental and Resource Economics.

Volume (Year): 27 (2004)
Issue (Month): 1 (January)
Pages: 1-19
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Handle: RePEc:kap:enreec:v:27:y:2004:i:1:p:1-19

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Web page: http://www.springerlink.com/link.asp?id=100263

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Related research
Keywords: competitive trading of emission permits; economic efficiency; oligopolistic product market;

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Van Long, N. & Soubeyran, A., 1997. "Cost Manipulation in Oligopoly: A Duality Approach," ASSET - Instituto De Economia Publica 174, ASSET (Association of Southern European Economic Theorists).
    Other versions:
  2. Nishimura, Kazuo & Friedman, James, 1981. "Existence of Nash Equilibrium in n Person Games without Quasi-Concavity," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 22(3), pages 637-48, October. [Downloadable!] (restricted)
  3. Nils-Henrik Mørch von der Fehr, 1993. "Tradable emission rights and strategic interaction," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 3(2), pages 129-151, April. [Downloadable!] (restricted)
    Other versions:
  4. Malueg, David A., 1990. "Welfare consequences of emission credit trading programs," Journal of Environmental Economics and Management, Elsevier, vol. 18(1), pages 66-77, January. [Downloadable!] (restricted)
  5. Hahn, Robert W, 1984. "Market Power and Transferable Property Rights," The Quarterly Journal of Economics, MIT Press, vol. 99(4), pages 753-65, November. [Downloadable!] (restricted)
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  6. Eftichios Sartzetakis, 1997. "Tradeable emission permits regulations in the presence of imperfectly competitive product markets: Welfare implications," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 9(1), pages 65-81, January. [Downloadable!] (restricted)
  7. Spencer, Barbara J., 1997. "Quota licenses for imported capital equipment: Could bureaucrats ever do better than the market?," Journal of International Economics, Elsevier, vol. 43(1-2), pages 1-27, August. [Downloadable!] (restricted)
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  8. Barbara J. Spencer & James A. Brander, 1982. "Strategic Commitment with R&D: The Symmetric Case," Working Papers 516, Queen's University, Department of Economics.
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  9. Gaudet, Gerard & Salant, Stephen W, 1991. "Uniqueness of Cournot Equilibrium: New Results from Old Methods," Review of Economic Studies, Blackwell Publishing, vol. 58(2), pages 399-404, April. [Downloadable!] (restricted)
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  10. Borenstein, Severin, 1988. "On the Efficiency of Competitive Markets for Operating Licenses," The Quarterly Journal of Economics, MIT Press, vol. 103(2), pages 357-85, May. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Julien Pierre Chevallier, 2007. "A differential game of intertemporal emissions trading with market power," EconomiX Working Papers 2007-18, University of Paris West - Nanterre la Défense, EconomiX. [Downloadable!]
  2. Julien Chevallier, 2009. "Intertemporal Emissions Trading and Allocation Rules: Gainers, Losers and the Spectre of Market Power," Working Papers halshs-00124713_v1, HAL. [Downloadable!]
  3. repec:mop:credwp:04.06.46 is not listed on IDEAS
  4. Meredith Fowlie, 2008. "Incomplete Environmental Regulation, Imperfect Competition, and Emissions Leakage," NBER Working Papers 14421, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Harrie A. A Verbon & Cees A. Withagen, 2005. "Tradable Emission Permits in a Federal System," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  6. Julien Chevallier, 2009. "Intertemporal Emissions Trading and Market Power: A Dominant Firm with Competitive Fringe Model," Working Papers halshs-00388207_v1, HAL. [Downloadable!]
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