Advanced Search
MyIDEAS: Login

Optimal Allocation of Tradable Emission Permits under Upstream-Downstream Strategic Interaction

Contents:

Author Info

  • Giuseppe De Feo

    ()
    (Department of Economics and Management, University of Pavia and University of Strathclyde)

  • Joana Resende

    ()
    (University of Porto and Cef.up)

  • Maria Eugenia Sanin

    ()
    (University of Montpellier)

Abstract

In this paper we analyze environmental regulation based on tradable emission permits in the presence of strategic interaction in an output market with differentiated products. We characterize firms' equilibrium behavior in the permits and in the output market and we show that both firms adopt "rival's cost-rising strategies". Then, we study the problem of the regulator that aims to maximize social welfare, proposing an efficient criterion to allocate permits between firms. We find that the optimal allocation criterion requires a perfect balance between the difference on firms' price-cost margins in the permits and the difference on firms' mark ups in the output market. In light of the previous result, we use a simulation to obtain the optimal allocation of permits between firms as a function of output market characteristics, in particular as a function of goods substitutability.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://economia.unipv.it/docs/dipeco/quad/ps/RePEc/pav/demwpp/DEMWP0013.pdf
Download Restriction: no

Bibliographic Info

Paper provided by University of Pavia, Department of Economics and Management in its series DEM Working Papers Series with number 013.

as in new window
Length: 25 pages
Date of creation: Nov 2012
Date of revision:
Handle: RePEc:pav:demwpp:013

Contact details of provider:
Postal: Via S. Felice, 5 - 27100 Pavia
Phone: +39/0382/506208
Fax: +39/0382/304226
Web page: http://epmq.unipv.eu/site/home.html
More information through EDIRC

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Pedro Linares & Francisco Javier Santos & Mariano Ventosa & Luis Lapiedra, 2006. "Impacts of the European Emissions Trading Scheme Directive and Permit Assignment Methods on the Spanish Electricity Sector," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 79-98.
  2. Montgomery, W. David, 1972. "Markets in licenses and efficient pollution control programs," Journal of Economic Theory, Elsevier, vol. 5(3), pages 395-418, December.
  3. Yihsu Chen & Benjamin Hobbs & Sven Leyffer & Todd Munson, 2006. "Leader-Follower Equilibria for Electric Power and NO x Allowances Markets," Computational Management Science, Springer, vol. 3(4), pages 307-330, September.
  4. Nils-Henrik Mørch von der Fehr, 1993. "Tradable emission rights and strategic interaction," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 3(2), pages 129-151, April.
  5. Catherine Boemare & Philippe Quirion, 2002. "Implementing greenhouse gas trading in Europe: lessons from economic literature and international experiences," Post-Print halshs-00007264, HAL.
  6. Salinger, Michael A, 1988. "Vertical Mergers and Market Foreclosure," The Quarterly Journal of Economics, MIT Press, vol. 103(2), pages 345-56, May.
  7. Hahn, Robert W, 1984. "Market Power and Transferable Property Rights," The Quarterly Journal of Economics, MIT Press, vol. 99(4), pages 753-65, November.
  8. Ordover, Janusz A & Saloner, Garth & Salop, Steven C, 1990. "Equilibrium Vertical Foreclosure," American Economic Review, American Economic Association, vol. 80(1), pages 127-42, March.
  9. Misiolek, Walter S. & Elder, Harold W., 1989. "Exclusionary manipulation of markets for pollution rights," Journal of Environmental Economics and Management, Elsevier, vol. 16(2), pages 156-166, March.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:pav:demwpp:013. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Alice Albonico).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.