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Market power, private information, and the optimal scale of pollution permit markets with application to North Carolina's Neuse River

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  • Yates, Andrew J.
  • Doyle, Martin W.
  • Rigby, J.R.
  • Schnier, Kurt E.

Abstract

We extend the analysis of optimal scale in pollution permit markets by allowing for both market power and private information. We characterize the total costs (abatement costs and damages) under market power and private information and compare them to total costs under competition. It is possible for both market power and private information to lead to lower total costs than competition, but generally the differences between the three market structures will be small. We also conduct an optimal scale analysis of nitrogen pollution from waste water treatment plants (WWTP) into North Carolina's Neuse River System. An economic model of damages and abatement costs is integrated with a hydro-ecological model of nitrogen flow through the Neuse. We determine the optimal number of trading zones and allocate the WWTP into these zones. Under the most likely regulatory scenario, we find cost savings of 1.55 million dollars per year under the optimal market design relative to the typical 303(d) regulation in which the WWTP are not allowed to trade.

Suggested Citation

  • Yates, Andrew J. & Doyle, Martin W. & Rigby, J.R. & Schnier, Kurt E., 2013. "Market power, private information, and the optimal scale of pollution permit markets with application to North Carolina's Neuse River," Resource and Energy Economics, Elsevier, vol. 35(3), pages 256-276.
    • Handle: RePEc:eee:resene:v:35:y:2013:i:3:p:256-276
    DOI: 10.1016/j.reseneeco.2013.02.003
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    Cited by:

    1. Jay S. Coggins & Andrew L. Goodkind & Jason Nguyen & Zhiyu Wang, 2019. "Price Effects, Inefficient Environmental Policy, and Windfall Profits," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 72(3), pages 637-656, March.
    2. Liang Liu & Cong Feng & Hongwei Zhang & Xuehua Zhang, 2015. "Game Analysis and Simulation of the River Basin Sustainable Development Strategy Integrating Water Emission Trading," Sustainability, MDPI, vol. 7(5), pages 1-21, April.
    3. Wang, Xu & Zhu, Lei & Liu, Pengfei, 2021. "Manipulation via endowments: Quantifying the influence of market power on the emission trading scheme," Energy Economics, Elsevier, vol. 103(C).
    4. Tanaka, Kenta & Matsukawa, Isamu & Managi, Shunsuke, 2020. "An experimental investigation of bilateral oligopoly in emissions trading markets," China Economic Review, Elsevier, vol. 59(C).
    5. Kurt Schnier & Martin Doyle & James R. Rigby & Andrew J. Yates, 2014. "Bilateral Oligopoly In Pollution Permit Markets: Experimental Evidence," Economic Inquiry, Western Economic Association International, vol. 52(3), pages 1060-1079, July.

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    Keywords

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    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling

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