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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.

Suggested Citation

  • 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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    More about this item

    Keywords

    Pollution market; Market power; Strategic market game;

    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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