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DO OLIGOPOLISTS POLLUTE LESS? EVIDENCE FROM A RESTRUCTURED ELECTRICITY MARKET -super-

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  • ERIN T. MANSUR

Abstract

Electricity restructuring has created the opportunity for producers to exercise market power. Oligopolists increase price by distorting output decisions, causing cross-firm production inefficiencies. This study estimates the environmental implications of production inefficiencies attributed to market power in the Pennsylvania, New Jersey, and Maryland electricity market. Air pollution fell substantially during 1999, the year in which both electricity restructuring and new environmental regulation took effect. I find that strategic firms reduced their emissions by approximately 20% relative to other firms and their own historic emissions. Next, I compare observed behavior with estimates of production, and therefore emissions, in a competitive market. According to a model of competitive behavior, changing costs explain approximately two-thirds of the observed pollution reductions. The remaining third can be attributed to firms exercising market power. Copyright 2007 Blackwell Publishing Ltd..

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  • Erin T. Mansur, 2007. "DO OLIGOPOLISTS POLLUTE LESS? EVIDENCE FROM A RESTRUCTURED ELECTRICITY MARKET -super-," Journal of Industrial Economics, Wiley Blackwell, vol. 55(4), pages 661-689, December.
  • Handle: RePEc:bla:jindec:v:55:y:2007:i:4:p:661-689
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    1. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    2. Richard Blundell & Stephen Bond, 2000. "GMM Estimation with persistent panel data: an application to production functions," Econometric Reviews, Taylor & Francis Journals, vol. 19(3), pages 321-340.
    3. Aigner, Dennis & Lovell, C. A. Knox & Schmidt, Peter, 1977. "Formulation and estimation of stochastic frontier production function models," Journal of Econometrics, Elsevier, vol. 6(1), pages 21-37, July.
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    Cited by:

    1. Chaton, Corinne & Guillerminet, Marie-Laure, 2013. "Competition and environmental policies in an electricity sector," Energy Economics, Elsevier, vol. 36(C), pages 215-228.
    2. Meghan R. Busse & Christopher R. Knittel & Jorge Silva-Risso & Florian Zettelmeyer, 2016. "Who is exposed to gas prices? How gasoline prices affect automobile manufacturers and dealerships," Quantitative Marketing and Economics (QME), Springer, vol. 14(1), pages 41-95, March.
    3. Johnsen, Reid & LaRiviere, Jacob & Wolff, Hendrik, 2016. "Estimating Indirect Benefits: Fracking, Coal and Air Pollution," IZA Discussion Papers 10170, Institute for the Study of Labor (IZA).
    4. Kim, Dongha & Jeong, Jinook, 2016. "Electricity restructuring, greenhouse gas emissions efficiency and employment reallocation," Energy Policy, Elsevier, vol. 92(C), pages 468-476.
    5. Linn, Joshua, 2010. "The effect of cap-and-trade programs on firms' profits: Evidence from the Nitrogen Oxides Budget Trading Program," Journal of Environmental Economics and Management, Elsevier, vol. 59(1), pages 1-14, January.
    6. Asane-Otoo, Emmanuel, 2016. "Competition policies and environmental quality: Empirical analysis of the electricity sector in OECD countries," Energy Policy, Elsevier, vol. 95(C), pages 212-223.

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