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Environmental Policy and Endogenous Market Structure

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This paper presents a simple dynamic general equilibrium model with supply-side strategic interactions to study the economic effects of mitigating greenhouse gas emissions in an economy with an emission cap and oligopolistic firms competing on prices. With such endogenous market structure a gradual decarbonization policy is likely to induce higher markups, while the number of active firms displays a U-shaped behavior, first decreasing and then increasing. In the long run more firms are active, but they transfer a part of the compliance cost to households by charging a higher markup. The negative effects on the level of economic activity of this anti-competitive outcome are strongly mitigated by recycling policies.

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Paper provided by Tor Vergata University, CEIS in its series CEIS Research Paper with number 384.

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Length: 49 pages
Date of creation: 22 Jun 2016
Date of revision: 22 Jun 2016
Handle: RePEc:rtv:ceisrp:384
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CEIS - Centre for Economic and International Studies - Faculty of Economics - University of Rome "Tor Vergata" - Via Columbia, 2 00133 Roma

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