IDEAS home Printed from https://ideas.repec.org/p/drm/wpaper/2023-14.html
   My bibliography  Save this paper

Pollution in strategic multilateral exchange: taxing emissions or trading on permit markets?

Author

Listed:
  • Ludovic A. Julien
  • Anicet Kabre
  • Louis de Mesnard

Abstract

We introduce polluting emissions in a sequential noncooperative oligopoly model of bilateral exchange. In one sector a leader and a follower use polluting technologies which create negative externalities on the payoffs of strategic traders who belong to the other sector. By modeling emissions as a negative externality, we show that the leader pollutes more (less) than the follower when strategies are substitutes (complements). Then, we consider the implementation of public policies to control the levels of emissions, namely two taxation mechanisms and a permit market. We study the effects of these public policies. Moreover, we determine the conditions under which these public policies can implement a Pareto-improving allocation.

Suggested Citation

  • Ludovic A. Julien & Anicet Kabre & Louis de Mesnard, 2023. "Pollution in strategic multilateral exchange: taxing emissions or trading on permit markets?," EconomiX Working Papers 2023-14, University of Paris Nanterre, EconomiX.
    • Handle: RePEc:drm:wpaper:2023-14
    as

    Download full text from publisher

    File URL: https://economix.fr/pdf/dt/2023/WP_EcoX_2023-14.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Bloch, Francis & Ferrer, Helene, 2001. "Strategic complements and substitutes in bilateral oligopolies," Economics Letters, Elsevier, vol. 70(1), pages 83-87, January.
    2. Bloch, Francis & Ghosal, Sayantan, 1997. "Stable Trading Structures in Bilateral Oligopolies," Journal of Economic Theory, Elsevier, vol. 74(2), pages 368-384, June.
    3. Frans P. Vries & Nick Hanley, 2016. "Incentive-Based Policy Design for Pollution Control and Biodiversity Conservation: A Review," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 63(4), pages 687-702, April.
    4. Gersbach, Hans & Requate, Till, 2004. "Emission taxes and optimal refunding schemes," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 713-725, March.
    5. Barnett, A H, 1980. "The Pigouvian Tax Rule under Monopoly," American Economic Review, American Economic Association, vol. 70(5), pages 1037-1041, December.
    6. Juan-Pablo Montero, 2009. "Market Power in Pollution Permit Markets," The Energy Journal, International Association for Energy Economics, vol. 0(Special I).
    7. Dickson, Alex & MacKenzie, Ian A., 2018. "Strategic trade in pollution permits," Journal of Environmental Economics and Management, Elsevier, vol. 87(C), pages 94-113.
    8. Ludovic A. Julien & Fabrice Tricou, 2012. "Market Price Mechanisms And Stackelberg General Equilibria: An Example," Bulletin of Economic Research, Wiley Blackwell, vol. 64(2), pages 239-252, April.
    9. Jean J. Gabszewicz & Lisa Grazzini, 1999. "Taxing Market Power," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 1(4), pages 475-497, October.
    10. Shapley, Lloyd S & Shubik, Martin, 1977. "Trade Using One Commodity as a Means of Payment," Journal of Political Economy, University of Chicago Press, vol. 85(5), pages 937-968, October.
    11. David R. Collie, 2019. "Taxation under oligopoly in a general equilibrium setting," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 21(4), pages 738-753, August.
    12. Alex Dickson & Roger Hartley, 2013. "Bilateral oligopoly and quantity competition," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 52(3), pages 979-1004, April.
    13. Ludovic A. Julien & Bertrand Crettez & Pierre-André Jouvet, 2021. "Pareto-Improving Supply Subsidy in a Simple General Oligopoly Equilibrium Model with Pollution Permits," Post-Print hal-03112679, HAL.
    14. Stephen F. Hamilton & Rickard Sandin, 1997. "Subsidies in Oligopoly Markets: a Welfare Comparison Between Symmetric and Asymmetric Costs," Public Finance Review, , vol. 25(6), pages 660-668, November.
    15. Odd Godal & Bjart Holtsmark, 2010. "International emissions trading with endogenous taxes," Discussion Papers 626, Statistics Norway, Research Department.
    16. GABSZEWICZ, Jean & GRAZZINI, Lisa, 2000. "Strategic multilateral exchange and taxes," LIDAM Discussion Papers CORE 2000063, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    17. Robert W. Hahn, 1984. "Market Power and Transferable Property Rights," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 99(4), pages 753-765.
    18. repec:bla:jpbect:v:1:y:1999:i:4:p:475-97 is not listed on IDEAS
    19. SANIN, Maria Eugenia & ZANAJ, Skerdilajda, 2007. "Environmental innovation under Cournot competition," LIDAM Discussion Papers CORE 2007050, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    20. Lisa Grazzini, 2006. "A Note on Ad Valorem and Per Unit Taxation in an Oligopoly Model," Journal of Economics, Springer, vol. 89(1), pages 59-74, October.
    21. Bulow, Jeremy I & Geanakoplos, John D & Klemperer, Paul D, 1985. "Multimarket Oligopoly: Strategic Substitutes and Complements," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 488-511, June.
    22. Alex Dickson & Simone Tonin, 2021. "An introduction to perfect and imperfect competition via bilateral oligopoly," Journal of Economics, Springer, vol. 133(2), pages 103-128, July.
    23. Nils-Henrik Mørch von der Fehr, 1993. "Tradable emission rights and strategic interaction," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 3(2), pages 129-151, April.
    24. Sanin, Maria-Eugenia & Zanaj, Skerdilajda, 2012. "Clean Technology Adoption Under Cournot Competition," Strategic Behavior and the Environment, now publishers, vol. 2(2), pages 159-172, July.
    25. Andreas Lange, 2012. "On the Endogeneity of Market Power in Emissions Markets," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 52(4), pages 573-583, August.
    26. Haita, Corina, 2014. "Endogenous market power in an emissions trading scheme with auctioning," Resource and Energy Economics, Elsevier, vol. 37(C), pages 253-278.
    27. Beat Hintermann, 2017. "Market Power in Emission Permit Markets: Theory and Evidence from the EU ETS," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 66(1), pages 89-112, January.
    28. Dafna Eshel, 2005. "Optimal Allocation of Tradable Pollution Rights and Market Structures," Journal of Regulatory Economics, Springer, vol. 28(2), pages 205-223, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ludovic A. Julien & Gagnie Pascal Yebarth, 2024. "Pareto-Optimal Taxation Mechanism in Noncooperative Strategic Bilateral Exchange," EconomiX Working Papers 2024-19, University of Paris Nanterre, EconomiX.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Anicet Kabre, 2018. "Cobb-Douglas preferences and pollution in a bilateral oligopoly market," EconomiX Working Papers 2018-48, University of Paris Nanterre, EconomiX.
    2. Anicet Kabre, 2018. "Cobb-Douglas preferences and pollution in a bilateral oligopoly market," Working Papers hal-04141683, HAL.
    3. 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.
    4. Wang, Xu & Zhang, Xiao-Bing & Zhu, Lei, 2019. "Imperfect market, emissions trading scheme, and technology adoption: A case study of an energy-intensive sector," Energy Economics, Elsevier, vol. 81(C), pages 142-158.
    5. Alex Dickson & Ian A. MacKenzie, 2022. "Permit Markets with Political and Market Distortions," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 82(1), pages 227-255, May.
    6. Dickson, Alex & MacKenzie, Ian A., 2018. "Strategic trade in pollution permits," Journal of Environmental Economics and Management, Elsevier, vol. 87(C), pages 94-113.
    7. Ludovic A. Julien & Gagnie Pascal Yebarth, 2024. "Pareto-Optimal Taxation Mechanism in Noncooperative Strategic Bilateral Exchange," EconomiX Working Papers 2024-19, University of Paris Nanterre, EconomiX.
    8. 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).
    9. Geng, Wenxin & Fan, Ying, 2022. "An imperfectly competitive permit market under a rate-based scheme," Energy Economics, Elsevier, vol. 105(C).
    10. Bingxin Zeng & Lei Zhu, 2019. "Market Power and Technology Diffusion in an Energy-Intensive Sector Covered by an Emissions Trading Scheme," Sustainability, MDPI, vol. 11(14), pages 1-18, July.
    11. Cyrinus B. Elegbede & Ludovic A. Julien & Louis Mesnard, 2022. "On preferences and taxation mechanisms in strategic bilateral exchange," Review of Economic Design, Springer;Society for Economic Design, vol. 26(1), pages 43-73, March.
    12. D’Amato, Alessio & Valentini, Edilio & Zoli, Mariangela, 2017. "Tradable quota taxation and market power," Energy Economics, Elsevier, vol. 63(C), pages 248-252.
    13. Makoto Tanaka, 2012. "Multi-Sector Model of Tradable Emission Permits," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 51(1), pages 61-77, January.
    14. Cont, Walter & Porto, Guido, 2014. "Measuring the impact of a change in the price of Cashew received by exporters on farmgate prices and poverty in Guinea-Bissau," Policy Research Working Paper Series 7036, The World Bank.
    15. Amir, Rabah & Bloch, Francis, 2009. "Comparative statics in a simple class of strategic market games," Games and Economic Behavior, Elsevier, vol. 65(1), pages 7-24, January.
    16. Beat Hintermann, 2011. "Market Power, Permit Allocation and Efficiency in Emission Permit Markets," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 49(3), pages 327-349, July.
    17. Ludovic A. Julien, 2017. "Hierarchical Competition and Heterogeneous Behavior in Noncooperative Oligopoly Markets," Post-Print hal-01637298, HAL.
    18. Ludovic A. Julien, 2024. "Noncooperative oligopoly equilibrium in markets with hierarchical competition," International Journal of Game Theory, Springer;Game Theory Society, vol. 53(2), pages 325-371, June.
    19. GABSZEWICZ, Jean & GRAZZINI, Lisa, 2000. "Strategic multilateral exchange and taxes," LIDAM Discussion Papers CORE 2000063, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    20. Francisco J. André & Luis Miguel de Castro, 2020. "Market Power in Output and Emissions Trading," Games, MDPI, vol. 11(4), pages 1-22, October.

    More about this item

    Keywords

    Stackelberg competition; pollution; fiscal policy; permit market;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:drm:wpaper:2023-14. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Valerie Mignon (email available below). General contact details of provider: https://edirc.repec.org/data/modemfr.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.