Tradeable Emission Permits in Oligopoly
The paper considers an oligopolistic industry in which pollution is a by-product of production. Firms are assumed to have emission permits that restrict the amount that they pollute. These permits are assumed to be tradeable and the paper discusses a structure in which the same set of firms operates both in the product market as well as in the pollution permits market. The paper demonstrates that in such a structure allowing trade in emission permits is not necessarily beneficial. In particular it may lead to the choice of inferior production and abatement technologies, it may lead to a market equilibrium with lower output rates and higher prices and it may result in a shift of production from a low cost to a high cost firm.
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|Date of creation:||1995|
|Date of revision:|
|Contact details of provider:|| Postal: Tel-Aviv University, The Sackler Institute of Economic Studies, Ramat Aviv 69 978 Tel-Aviv, Israel|
Web page: http://econ.tau.ac.il/
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- B. Curtis Eaton & Richard G. Lipsey, 1981.
"Capital, Commitment, and Entry Equilibrium,"
Bell Journal of Economics,
The RAND Corporation, vol. 12(2), pages 593-604, Autumn.
- Morch von der Fehr, N-H., 1991.
"Tradable Emission Rights and Strategic Interaction,"
11/1991, Oslo University, Department of Economics.
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- Baumol,William J. & Oates,Wallace E., 1988.
"The Theory of Environmental Policy,"
Cambridge University Press, number 9780521322249, December.
- Foster, Vivien & Hahn, Robert W, 1995. "Designing More Efficient Markets: Lessons from Los Angeles Smog Control," Journal of Law and Economics, University of Chicago Press, vol. 38(1), pages 19-48, April.
- Dixit, Avinash, 1980.
"The Role of Investment in Entry-Deterrence,"
Royal Economic Society, vol. 90(357), pages 95-106, March.
- Dixit, Avinash, 1979. "The Role of Investment in Entry-Deterrence," The Warwick Economics Research Paper Series (TWERPS) 140, University of Warwick, Department of Economics.
- Montgomery, W. David, 1972. "Markets in licenses and efficient pollution control programs," Journal of Economic Theory, Elsevier, vol. 5(3), pages 395-418, December.
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