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Strategic trade in pollution permits

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  • Dickson, Alex
  • MacKenzie, Ian A.

Abstract

Markets for pollution have become a popular regulatory instrument. In this article we investigate the implications of strategic trade in pollution permits. The permit market is developed as a strategic market game, where all firms are allowed to behave strategically and their roles as buyers or sellers of permits are determined endogenously with price-mediated trade. In a second stage, firms transact on a product market and we allow for a variety of market structures. We identify a unique equilibrium in permit exchange, investigate the properties of this equilibrium, and consider the effect of strategic behavior in the product market.

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  • Dickson, Alex & MacKenzie, Ian A., 2018. "Strategic trade in pollution permits," Journal of Environmental Economics and Management, Elsevier, vol. 87(C), pages 94-113.
  • Handle: RePEc:eee:jeeman:v:87:y:2018:i:c:p:94-113
    DOI: 10.1016/j.jeem.2017.04.009
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    Cited by:

    1. Khezr, Peyman & MacKenzie, Ian A., 2021. "Revenue and efficiency in pollution permit allocation mechanisms," Energy Economics, Elsevier, vol. 93(C).
    2. Bingxin Zeng & Lei Zhu, 2019. "Market Power and Technology Diffusion in an Energy-Intensive Sector Covered by an Emissions Trading Scheme," Sustainability, MDPI, Open Access Journal, vol. 11(14), pages 1-18, July.
    3. Alex Dickson & Ian A. MacKenzie, 2020. "Permit markets with political and market distortions," Discussion Papers Series 615, School of Economics, University of Queensland, Australia.
    4. Wang, Ge & Zhang, Qi & Li, Yan & Mclellan, Benjamin C., 2019. "Efficient and equitable allocation of renewable portfolio standards targets among China's provinces," Energy Policy, Elsevier, vol. 125(C), pages 170-180.
    5. Anicet Kabre, 2018. "Cobb-Douglas preferences and pollution in a bilateral oligopoly market," EconomiX Working Papers 2018-48, University of Paris Nanterre, EconomiX.
    6. Wang, Xu & Zhang, Xiao-Bing & Zhu, Lei, 2019. "Imperfect market, emissions trading scheme, and technology adoption: A case study of an energy-intensive sector," Energy Economics, Elsevier, vol. 81(C), pages 142-158.
    7. Dijkstra, Bouwe R. & Nentjes, Andries, 2020. "Pareto-Efficient Solutions for Shared Public Good Provision: Nash Bargaining versus Exchange-Matching-Lindahl," Resource and Energy Economics, Elsevier, vol. 61(C).

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    More about this item

    Keywords

    Pollution market; Market power; Strategic market game;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects

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