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Comparative Statics of a Monopolistic Firm Facing Rate-of-Return and Command-and-Control Pollution Constraints

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  • Michael Caputo

    (University of Central Florida, Orlando, FL)

  • Dmitriy Popov

    (University of California, Davis, CA)

Abstract

The intrinsic comparative statics properties of a general rate-of-return regulated, profitmaximizing model of a monopolist facing a command-and-control pollution constraint are derived. Recent advances in the theory of comparative statics are used to derive the basic comparative statics of the model, which are contained in an observable negative semidefinite matrix and possess the form of Slutsky-like expressions. We consider several command-and-control pollution constraints that are commonly implemented in practice, and conclude that the intrinsic comparative statics properties of the model are qualitatively invariant to the type of command-andcontrol pollution constraint imposed. We compare our results with those extant, and find that several basic results from the standard A-J model no longer hold in our model.

Suggested Citation

  • Michael Caputo & Dmitriy Popov, 2010. "Comparative Statics of a Monopolistic Firm Facing Rate-of-Return and Command-and-Control Pollution Constraints," Working Papers 2010-06, University of Central Florida, Department of Economics, revised Jun 2012.
    • Handle: RePEc:cfl:wpaper:2010-06
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    References listed on IDEAS

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    1. David P. Baron, 1985. "Noncooperative Regulation of a Nonlocalized Externality," RAND Journal of Economics, The RAND Corporation, vol. 16(4), pages 553-568, Winter.
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    3. Armstrong, Mark & Sappington, David E.M., 2007. "Recent Developments in the Theory of Regulation," Handbook of Industrial Organization, in: Mark Armstrong & Robert Porter (ed.), Handbook of Industrial Organization, edition 1, volume 3, chapter 27, pages 1557-1700, Elsevier.
    4. Paul L. Joskow, 1972. "The Determination of the Allowed Rate of Return in a Formal Regulatory Hearing," Bell Journal of Economics, The RAND Corporation, vol. 3(2), pages 632-644, Autumn.
    5. Michael R. Caputo & M. Hossein Partovi, 2008. "Intrinsic comparative statics of a general class of profit-maximizing rate-of-return regulated firms," Oxford Economic Papers, Oxford University Press, vol. 60(2), pages 369-382, April.
    6. M. Hossein Partovi & Michael R. Caputo, 2006. "A Complete Theory Of Comparative Statics For Differentiable Optimization Problems," Metroeconomica, Wiley Blackwell, vol. 57(1), pages 31-67, February.
    7. Michael R. Caputo & M. Hossein Partovi, 2002. "Reexamination of the A-J effect," Economics Bulletin, AccessEcon, vol. 12(10), pages 1-9.
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    9. Helfand, Gloria E, 1991. "Standards versus Standards: The Effects of Different Pollution Restrictions," American Economic Review, American Economic Association, vol. 81(3), pages 622-634, June.
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    Cited by:

    1. Caputo, Michael R., 2014. "Comparative statics of a monopolistic firm facing price-cap and command-and-control environmental regulations," Energy Economics, Elsevier, vol. 46(C), pages 464-471.
    2. Zhou, Anhua & Xin, Ling & Li, Jun, 2022. "Assessing the impact of the carbon market on the improvement of China's energy and carbon emission performance," Energy, Elsevier, vol. 258(C).

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    More about this item

    Keywords

    Averch-Johnson; Comparative statics; Command-and-control regulations;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General

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