Tradeable Emission Permits Regulations in the Presence of Imperfectly Competitive Product Markets: Welfare Implications |
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Authors: | Eftichios Sophocles Sartzetakis |
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Institution: | (1) Department of Economics, University College of the Cariboo, P.O. Box 3010, V2C 5N3 Kamloops, B.C., Canada |
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Abstract: | In the present paper, we analyse the interaction of a competitive market for emission permits with an oligopolistic product
market. It is well known that a competitive permits market achieves the cost minimizing distribution of abatement effort among
the polluting firms for a given reduction in emissions. However, when the product market is oligopolistic, it may redistribute
production inefficiently among firms. It has been suggested that this inefficiency can outweigh the gains obtained from using
emission permits instead of command and control. Although this argument is clearly correct under full information, it is shown
in the present paper that it reverses under incomplete information. In particular, it is shown that when tradeable emission
permits are specified according to the standard textbook example, they yield higher social welfare than the command and control
regulation. |
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Keywords: | emission permits oligopoly welfare |
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