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Environmental Externalities and the Optimal Level of Market Power


  • Munisamy Gopinath
  • JunJie Wu


This article derives the condition under which agricultural chemical producers' desire to under-produce, associated with market power, exactly offsets the tendency to overproduce, due to their failure to consider externality costs of agricultural chemicals. This condition is satisfied when the price markup in the chemical industries equals the marginal environmental damages caused by chemicals. Our estimates of price markup for nitrogen, phosphate, and pesticides industries indicate that the welfare loss caused by market power is exactly offset by environmental benefits if the marginal pollution costs are, respectively, eight, nine, and twenty-two cents for each dollar's worth of these chemicals. Copyright 1999, Oxford University Press.

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  • Munisamy Gopinath & JunJie Wu, 1999. "Environmental Externalities and the Optimal Level of Market Power," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(4), pages 825-833.
  • Handle: RePEc:oup:ajagec:v:81:y:1999:i:4:p:825-833

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    Cited by:

    1. Majid Ahmadian, 2011. "Dynamics Emission for a Polluting Industry," Iranian Economic Review, Economics faculty of Tehran university, vol. 16(3), pages 93-102, fall.
    2. Lori Bennear & Robert Stavins, 2007. "Second-best theory and the use of multiple policy instruments," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 37(1), pages 111-129, May.
    3. Kim, C.S. & Hallahan, Charles B. & Taylor, Harold & Schluter, Gerald E., 2002. "Market Power And Cost-Efficiency Effects Of The Market Concentration In The U.S. Nitrogen Fertilizer Industry," 2002 Annual meeting, July 28-31, Long Beach, CA 19674, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    4. Leonardo J. Maldonado, 2012. "Política ambiental discrecional y bienestar social: un modelo de inconsistencia dinámica," Economic Analysis Working Papers (2002-2010). Atlantic Review of Economics (2011-2016), Colexio de Economistas de A Coruña, Spain and Fundación Una Galicia Moderna, vol. 1, pages 1-1, June.
    5. Kevin Currier & Yanming Sun, 2014. "Market Power and Welfare in Electricity Markets Employing Tradable Green Certificate Systems," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 20(2), pages 129-138, May.
    6. Chang, Hung-Hao & Boisvert, Richard N. & Blandford, David, 2005. "Achieving Environmental Objectives Under Reduced Domestic Agricultural Support and Trade Liberalization: An Empirical Application to Taiwan," Agricultural and Resource Economics Review, Cambridge University Press, vol. 34(01), pages 16-31, April.
    7. repec:kap:iaecre:v:20:y:2014:i:2:p:129-138 is not listed on IDEAS
    8. Humber, Jacob, 2014. "Mergers and Market Power in the US Nitrogen Fertilizer Industry," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 170667, Agricultural and Applied Economics Association.
    9. Anthony Downward, 2010. "Carbon Charges in Electricity Markets with Strategic Behavior and Transmission," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 159-166.

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