This paper analyzes the effects of pollution permit markets on equilibrium employment in a wage-setting/price-setting (WS–PS) model. The employment level is determined according to different methods of financing unemployment benefits: a wage tax or the revenue from a pollution permit auction....

Permit markets lead polluting firms to purchase abatement goods from an eco-industry, which is often concentrated. This paper studies the consequences of imperfect competition in an eco-industry on the equilibrium choices of the competitive polluting firms. It then characterizes the second best...