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

Author

Listed:
  • Ludovic A. Julien

    (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

  • Anicet Kabre
  • Louis de Mesnard

    (CREGO - Centre de Recherche en Gestion des Organisations - Université de Haute-Alsace (UHA) - Université de Haute-Alsace (UHA) Mulhouse - Colmar - UB - Université de Bourgogne - UBFC - Université Bourgogne Franche-Comté [COMUE] - UFC - Université de Franche-Comté - UBFC - Université Bourgogne Franche-Comté [COMUE])

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, 2022. "Pollution in strategic multilateral exchange: taxing emissions or trading on permit markets?," Post-Print hal-03791673, HAL.
    • Handle: RePEc:hal:journl:hal-03791673
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    References listed on IDEAS

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    Keywords

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    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

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