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Strategic trade in pollution permits

Author

Listed:
  • Alex Dickson

    () (Department of Economics, University of Strathclyde)

  • Ian A MacKenzie

    () (School of Economics, University of Queensland)

Abstract

Markets for pollution have become a popular regulatory instrument. Yet these markets are often highly concentrated, which may lead to strategic behavior by all participants. In this article we investigate the implications of strategic trade in pollution permits. The permit market is developed as a strategic market game, where all firms are allowed to behave strategically and their roles as buyers or sellers of permits are determined endogenously with price-mediated trade. In a second stage, firms transact on a product market and we allow for a variety of market structures. Our framework establishes the endogenous determination of equilibrium price, market structure, and levels of exchange in the permit market.

Suggested Citation

  • Alex Dickson & Ian A MacKenzie, 2016. "Strategic trade in pollution permits," Working Papers 1602, University of Strathclyde Business School, Department of Economics.
  • Handle: RePEc:str:wpaper:1602
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    References listed on IDEAS

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    Cited by:

    1. Khezr, Peyman & MacKenzie, Ian A., 2021. "Revenue and efficiency in pollution permit allocation mechanisms," Energy Economics, Elsevier, vol. 93(C).
    2. Anicet Kabre, 2018. "Cobb-Douglas preferences and pollution in a bilateral oligopoly market," EconomiX Working Papers 2018-48, University of Paris Nanterre, EconomiX.
    3. Wang, Ge & Zhang, Qi & Li, Yan & Mclellan, Benjamin C., 2019. "Efficient and equitable allocation of renewable portfolio standards targets among China's provinces," Energy Policy, Elsevier, vol. 125(C), pages 170-180.
    4. Wang, Xu & Zhang, Xiao-Bing & Zhu, Lei, 2019. "Imperfect market, emissions trading scheme, and technology adoption: A case study of an energy-intensive sector," Energy Economics, Elsevier, vol. 81(C), pages 142-158.
    5. Alex Dickson & Ian A MacKenzie, 2020. "Permit markets with political and market distortions," Working Papers 2001, University of Strathclyde Business School, Department of Economics.
    6. Bingxin Zeng & Lei Zhu, 2019. "Market Power and Technology Diffusion in an Energy-Intensive Sector Covered by an Emissions Trading Scheme," Sustainability, MDPI, Open Access Journal, vol. 11(14), pages 1-18, July.
    7. Dijkstra, Bouwe R. & Nentjes, Andries, 2020. "Pareto-Efficient Solutions for Shared Public Good Provision: Nash Bargaining versus Exchange-Matching-Lindahl," Resource and Energy Economics, Elsevier, vol. 61(C).

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    More about this item

    Keywords

    Pollution market; Market power; Strategic market game.;
    All these keywords.

    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
    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling

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