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Duopolists in Output and Permit Markets: Interaction and Regulation


  • Lappi, Pauli


This paper studies the interaction between and the regulation of duopolists in imperfect permit and output markets. The interaction is modeled with a two-stage game in which the permit holding decision is made after the output decision. In the case of dominant buyer this results in a larger total output compared to the output level when the permit markets are perfect but the output market is imperfect. The opposite result holds for dominant sellers. In addition, the second-best regulation is characterized. It is shown that subsidies for permit buying and taxes for permit selling can be used as instruments to increase efficiency in both markets.

Suggested Citation

  • Lappi, Pauli, 2012. "Duopolists in Output and Permit Markets: Interaction and Regulation," Strategic Behavior and the Environment, now publishers, vol. 2(3), pages 279-293, September.
  • Handle: RePEc:now:jnlsbe:102.00000018

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    References listed on IDEAS

    1. Deke, Oliver, 2004. "Financing National Protected Area Networks Internationally: The Global Environment Facility as a Multilateral Mechanism of Transfer," Kiel Working Papers 1227, Kiel Institute for the World Economy (IfW).
    2. Rupert Gatti & Timo Goeschl & Ben Groom & Timothy Swanson, 2011. "The Biodiversity Bargaining Problem," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 48(4), pages 609-628, April.
    3. Scott Barrett, 1994. "The biodiversity supergame," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 4(1), pages 111-122, February.
    4. Tacconi, Luca, 2009. "Compensated successful efforts for avoided deforestation vs compensated reductions," Ecological Economics, Elsevier, vol. 68(8-9), pages 2469-2472, June.
    5. Koop, Gary & Tole, Lise, 1999. "Is there an environmental Kuznets curve for deforestation?," Journal of Development Economics, Elsevier, vol. 58(1), pages 231-244, February.
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    More about this item


    Cournot duopoly; Emission trading; Imperfect competition; Regulation; Strategic interaction;

    JEL classification:

    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General


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