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Tradeable Emission Permits in Oligopoly

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Author Info

  • Fershtman,C.
  • de Zeeuw,A.

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 Tel Aviv - the Sackler Institute of Economic Studies in its series Papers with number 45-95.

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Length: 30 pages
Date of creation: 1995
Date of revision:
Handle: RePEc:fth:teavsa:45-95

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Postal: Tel-Aviv University, The Sackler Institute of Economic Studies, Ramat Aviv 69 978 Tel-Aviv, Israel
Phone: +972-3-640-9715
Fax: +972-3-640-9908
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Web page: http://econ.tau.ac.il/
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Keywords: OLIGOPOLIES; POLLUTION;

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References

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  1. Baumol,William J. & Oates,Wallace E., 1988. "The Theory of Environmental Policy," Cambridge Books, Cambridge University Press, number 9780521322249.
  2. 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.
  3. 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.
  4. Baumol,William J. & Oates,Wallace E., 1988. "The Theory of Environmental Policy," Cambridge Books, Cambridge University Press, number 9780521311120.
  5. B. Curtis Eaton & Richard G. Lipsey, 1980. "Capital, Commitment, and Entry Equilibrium," Working Papers 397, Queen's University, Department of Economics.
  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. Dixit, Avinash, 1980. "The Role of Investment in Entry-Deterrence," Economic Journal, Royal Economic Society, vol. 90(357), pages 95-106, March.
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Citations

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Cited by:
  1. 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.
  2. 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.
  3. 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.
  4. Dafna Eshel, 2005. "Optimal Allocation of Tradable Pollution Rights and Market Structures," Journal of Regulatory Economics, Springer, vol. 28(2), pages 205-223, 09.
  5. 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.
  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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