Competitive Permit Markets and Vertical Structures: The Relevance of Imperfectly 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 this sort of imperfectly competitive eco-industry on the equilibrium choices of the competitive polluting firms. It then characterizes the second-best pollution cap. By comparing this situation to one of perfect competition, we show that Cournot competition on the abatement good market contributes not only to a nonoptimal 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 noncompetitive firms, and suggest a second-best larger pollution cap.
Year of publication: |
2014
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Authors: | SCHWARTZ, SONIA ; STAHN, HUBERT |
Published in: |
Journal of Public Economic Theory. - Association for Public Economic Theory - APET, ISSN 1097-3923. - Vol. 16.2014, 1, p. 69-95
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Publisher: |
Association for Public Economic Theory - APET |
Saved in:
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