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Tax Policy in a Simple General Oligopoly Equilibrium Model with Pollution Permits

Author

Listed:
  • Bertrand Crettez
  • Pierre-André Jouvet
  • Ludovic A. Julien

Abstract

We introduce a pollution permits market in a general oligopoly equilibrium model. Specifically, we consider a two-commodity economy with one productive sector. The first commodity is inelastically supplied by a set of competitive traders. The second commodity is produced by a set of strategic traders, using the first commodity as an input. The production of the second commodity is a polluting activity. Introducing a competitive emissions permits market solves the pollution control problem but is not sufficient to eliminate market distortions and to reach a Pareto optimal allocation. We study the conditions under which a subsidy to the strategic agents, financed by a tax on the competitive agents, is welfare increasing.

Suggested Citation

  • Bertrand Crettez & Pierre-André Jouvet & Ludovic A. Julien, 2014. "Tax Policy in a Simple General Oligopoly Equilibrium Model with Pollution Permits," Working Papers 1413, Chaire Economie du climat.
    • Handle: RePEc:cec:wpaper:1413
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    File URL: http://www.chaireeconomieduclimat.org/RePEc/cec/wpaper/14-09-Cahier-R-2014-13-Crettez-et-al.pdf
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    References listed on IDEAS

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    Cited by:

    1. Anicet Kabre, 2018. "Cobb-Douglas preferences and pollution in a bilateral oligopoly market," Working Papers hal-04141683, HAL.
    2. Anicet Kabre, 2018. "Cobb-Douglas preferences and pollution in a bilateral oligopoly market," EconomiX Working Papers 2018-48, University of Paris Nanterre, EconomiX.

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    More about this item

    Keywords

    oligopoly equilibrium; taxation policy; pollution.;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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