Market Power in Pollution Permit Markets
AbstractAs with other commodity markets, markets for trading pollution permits have not been immune to market power concerns. In this paper, I survey the existing literature on market power in permit trading but also contribute with some new results and ideas. I start the survey with HahnÂ’s (1984) dominant-firm (static) model that I then extend to the case in which there are two or more strategic firms that may also strategically interact in the output market, to the case in which current permits can be stored for future use (as in most existing and proposed market designs), to the possibility of collusive behavior, and to the case in which permits are auctioned off instead of allocated for free to firms. I finish the paper with a review of empirical evidence on market power, if any, with particular attention to the U.S. sulfur market and the Southern California NOx market.
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Bibliographic InfoPaper provided by Instituto de Economia. Pontificia Universidad Católica de Chile. in its series Documentos de Trabajo with number 355.
Date of creation: 2009
Date of revision:
Market power; emissions trading; pollution permits; storable permits;
Other versions of this item:
- D40 - Microeconomics - - Market Structure and Pricing - - - General
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-07-17 (All new papers)
- NEP-COM-2009-07-17 (Industrial Competition)
- NEP-ENE-2009-07-17 (Energy Economics)
- NEP-ENV-2009-07-17 (Environmental Economics)
- NEP-MIC-2009-07-17 (Microeconomics)
- NEP-RES-2009-07-17 (Resource Economics)
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