Competitive Permit Markets and Vertical Structures: The Relevance of Imperfect Competitive Eco-Industries
Permit markets lead polluting firms to purchase abatement goods from an eco-industry, which is often concentrated. This paper studies the consequences of imperfect competition in an eco-industry on the equilibrium choices of the competitive polluting firms. It then characterizes the second best pollution cap. By comparing this situation to a competitive one, we show that Cournot competition on the abatement good market contributes not only to a non optimal level of emission reduction but also to a higher permit price, which reduces the production level. These distortions increase with market power measured by the margin taken by the non competitive firms and suggest a second best less stringent pollution cap
|Date of creation:||12 Jul 2010|
|Note:||View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00501831|
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