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Coalition formation and strategic permit trade under the Kyoto Protocol

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  • Godal, Odd

    ()
    (Göteborg University and University of Bergen)

  • Meland, Frode

    ()
    (University of Bergen, Department of Economics)

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    Abstract

    This paper discusses coalition formation with side payments in markets for transferable property rights where strategic agents prevail on both sides of the market. Our concern is emissions permit trading under the Kyoto Protocol. While a seller cartel is not profitable, our analysis indicates that coalitions between sellers and buyers pay off. Three stable cartels are found. None involve all agents, yet they all induce overall e¢ ciency. To support a stable coalition, the EU, Japan and Canada may pay together between 0 and 13 billion US dollars per year to Russia. The permit price and society-wide emission reductions are nil.

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    File URL: http://www.uib.no/filearchive/No.%2004-06.pdf
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    Bibliographic Info

    Paper provided by University of Bergen, Department of Economics in its series Working Papers in Economics with number 04/06.

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    Length: 25 pages
    Date of creation: 01 Apr 2011
    Date of revision:
    Handle: RePEc:hhs:bergec:2006_004

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    Postal: Institutt for økonomi, Universitetet i Bergen, Postboks 7802, 5020 Bergen, Norway
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    Web page: http://www.uib.no/econ/en
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    Related research

    Keywords: Emissions trading; Kyoto Protocol; cartel formation; merger profitability.;

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    1. d'ASPREMONT, Claude & JACQUEMIN, Alexis & GABSZEWICZ, Jean J. & WEYMARK, John A., . "On the stability of collusive price leadership," CORE Discussion Papers RP -522, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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