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Emissions Trading, Firm Heterogeneity, and Intra-Industry Reallocations in the Long Run

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  • Konishi, Yoshifumi
  • Tarui, Nori

Abstract

Design of environmental regulation has substantial implications for size distribution and mass of firms within and across industries in the long run. In a general equilibrium model that accounts for endogenous entry and exit of heterogeneous firms, the welfare impacts of emissions trading are analytically decomposed into the effects on economy-wide income, mass of firms, size distribution, markups, and factor prices. Distortionary impacts on size distribution and permit price depend on the conditionality of permit distribution, interactions between changes in entry-exit conditions and in aggregate accounting conditions, the factor intensity of entry, and coverage of non-pollution-intensive sectors in emissions trading.

Suggested Citation

  • Konishi, Yoshifumi & Tarui, Nori, 2014. "Emissions Trading, Firm Heterogeneity, and Intra-Industry Reallocations in the Long Run," CEI Working Paper Series 2014-1, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
  • Handle: RePEc:hit:hitcei:2014-1
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    Citations

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    Cited by:

    1. Li, Zhe & Sun, Jianfei, 2015. "Emission taxes and standards in a general equilibrium with entry and exit," Journal of Economic Dynamics and Control, Elsevier, vol. 61(C), pages 34-60.
    2. Andersen, Dana C., 2016. "Accounting for Firm Exit and Loss of Variety in the Welfare Cost of Regulations," Working Papers 2016-9, University of Alberta, Department of Economics.
    3. repec:anr:reveco:v:9:y:2017:p:59-85 is not listed on IDEAS
    4. Anouliès, Lisa, 2017. "Heterogeneous firms and the environment: a cap-and-trade program," Journal of Environmental Economics and Management, Elsevier, vol. 84(C), pages 84-101.
    5. repec:eee:jeeman:v:88:y:2018:i:c:p:69-94 is not listed on IDEAS
    6. Jevan Cherniwchan & Brian R. Copeland & M. Scott Taylor, 2017. "Trade and the Environment: New Methods, Measurements, and Results," Annual Review of Economics, Annual Reviews, vol. 9(1), pages 59-85, September.
    7. Andersen, Dana C., 2017. "Default Risk, Productivity, and the Environment: Theory and Evidence from U.S. Manufacturing," Working Papers 2017-8, University of Alberta, Department of Economics.

    More about this item

    Keywords

    Conditional Allocation Rules; Emissions Trading; Heterogeneous Firms; Endogenous; Entry/Exit; Melitz Model; Imperfect Competition;

    JEL classification:

    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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