On Abatement Services: Market Power and Efficient Environmental Regulation

Damien Sans (), Sonia Schwartz and Hubert Stahn

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Abstract: In this paper, we study an eco-industry providing an environmental service to a competitive polluting sector. We show that even if this eco-industry is highly concentrated, a standard environmental policy based on a Pigouvian tax or a pollution permit market reaches the first-best outcome, challenging the Tinbergen rule. To illustrate this point, we first consider an upstream monopoly selling eco-services to a representative polluting firm. We progressively extend our result to heterogeneous downstream polluters and heterogeneous upstream Cournot competitors. Finally, we underline some limits of this result. It does not hold under the assumption of abatement goods or downstream market power. In this last case, we obtain Barnett's result.

Keywords: environmental regulation; eco-industry; imperfect competition; abatement services (search for similar items in EconPapers)
Date: 2015-07
New Economics Papers: this item is included in nep-com, nep-ene, nep-env and nep-res
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01182200
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Working Paper: On Abatement Services: Market Power and Efficient Environmental Regulation (2015)
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