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Tradeable Emission Permits in Oligopoly

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  • Fershtman, Chaim
  • de Zeeuw, Aart

Abstract

The paper considers an oligopolistic industry in which pollution is a by-product of production. Firms are assumed to have emission permits that restrict the amount that they pollute. These permits are assumed to be tradeable and the paper discusses a structure in which the same set of firms operates both in the product market as well as in the pollution permits market. The paper demonstrates that in such a structure allowing trade in emission permits is not necessarily beneficial. In particular it may lead to the choice of inferior production and abatement technologies, it may lead to a market equilibrium with lower output rates and higher prices and it may result in a shift of production from a low cost to a high cost firm.

Suggested Citation

  • Fershtman, Chaim & de Zeeuw, Aart, 1995. "Tradeable Emission Permits in Oligopoly," Foerder Institute for Economic Research Working Papers 275612, Tel-Aviv University > Foerder Institute for Economic Research.
    • Handle: RePEc:ags:isfiwp:275612
    DOI: 10.22004/ag.econ.275612
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    File URL: https://ageconsearch.umn.edu/record/275612/files/TEL-AVIV-FSWP-249.pdf
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    References listed on IDEAS

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    Cited by:

    1. Guo, Xinyu, 2021. "Capacity coordination and strategic underproduction under cap-and-trade," ISU General Staff Papers 202112212129530000, Iowa State University, Department of Economics.

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