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Tradeable Emission Permits in Oligopoly

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Author Info

  • Fershtman, C.
  • Zeeuw, A.J. de

    (Tilburg University, Center for Economic Research)

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.

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 1996-30.

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Date of creation: 1996
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Handle: RePEc:dgr:kubcen:199630

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Web page: http://center.uvt.nl

Related research

Keywords: pollution control; oligopoly; trade; emission permit;

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References

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  1. Foster, Vivien & Hahn, Robert W, 1995. "Designing More Efficient Markets: Lessons from Los Angeles Smog Control," Journal of Law and Economics, University of Chicago Press, vol. 38(1), pages 19-48, April.
  2. Baumol,William J. & Oates,Wallace E., 1988. "The Theory of Environmental Policy," Cambridge Books, Cambridge University Press, number 9780521322249, October.
  3. Dixit, Avinash, 1979. "The Role of Investment in Entry-Deterrence," The Warwick Economics Research Paper Series (TWERPS) 140, University of Warwick, Department of Economics.
  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.
  5. B. Curtis Eaton & Richard G. Lipsey, 1981. "Capital, Commitment, and Entry Equilibrium," Bell Journal of Economics, The RAND Corporation, vol. 12(2), pages 593-604, Autumn.
  6. Montgomery, W. David, 1972. "Markets in licenses and efficient pollution control programs," Journal of Economic Theory, Elsevier, vol. 5(3), pages 395-418, December.
  7. Baumol,William J. & Oates,Wallace E., 1988. "The Theory of Environmental Policy," Cambridge Books, Cambridge University Press, number 9780521311120, October.
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Citations

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Cited by:
  1. Harrie A.A. Verbon & Cees A. Withagen, 2004. "Tradable emission permits in a federal system," Economic Working Papers at Centro de Estudios Andaluces E2004/83, Centro de Estudios Andaluces.
  2. Ivana Capozza, 2003. "A Dynamic Game of Technology Diffusion under an Emission Trading Regulation: A Pilot Experiment," series 0008, Dipartimento di Scienze Economiche e Metodi Matematici - UniversitĂ  di Bari, revised Apr 2003.
  3. Kjell SunnevÄg, 2003. "Auction Design for the Allocation of Emission Permits in the Presence of Market Power," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 26(3), pages 385-400, November.
  4. Eftichios Sartzetakis, 2004. "On the Efficiency of Competitive Markets for Emission Permits," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 27(1), pages 1-19, January.
  5. Dafna Eshel, 2005. "Optimal Allocation of Tradable Pollution Rights and Market Structures," Journal of Regulatory Economics, Springer, vol. 28(2), pages 205-223, 09.
  6. Dafna Eshel & Richard Sexton, 2009. "Allowing communities to trade in imperfectly competitive pollution-permit markets," Journal of Regulatory Economics, Springer, vol. 36(1), pages 60-82, August.

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