Permit Markets with Political and Market Distortions

Alex Dickson and Ian MacKenzie
Additional contact information
Alex Dickson: University of Strathclyde

Environmental & Resource Economics, 2022, vol. 82, issue 1, No 7, 227-255

Abstract: Abstract This article investigates cap-and-trade markets in the presence of both political and market distortions. We create a model where dominant firms have the ability to rent seek for a share of pollution permits as well as influence the market equilibrium with their choice of permit exchange because of market power. We derive the equilibrium and show the interaction of these two distortions has consequences for the resulting marginal inefficiency—the extent to which a re-allocation of permits between firms can reduce equilibrium abatement costs. We find that if the regulator is not very responsive to rent seeking then marginal inefficiency reduces relative to the case without rent seeking. When the regulator is very responsive to rent seeking, if dominant rent-seeking firms are all permit buyers (sellers) then marginal inefficiency reduces (increases) relative to the case without rent seeking.

Keywords: Pollution market; Market power; Rent seeking (search for similar items in EconPapers)
JEL-codes: D43 D72 Q58 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://link.springer.com/10.1007/s10640-022-00673-2 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
Working Paper: Permit markets with political and market distortions (2020)
Working Paper: Permit markets with political and market distortions (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:enreec:v:82:y:2022:i:1:d:10.1007_s10640-022-00673-2

Ordering information: This journal article can be ordered from
http://www.springer. ... al/journal/10640/PS2

DOI: 10.1007/s10640-022-00673-2

Access Statistics for this article

Environmental & Resource Economics is currently edited by Ian J. Bateman

More articles in Environmental & Resource Economics from Springer, European Association of Environmental and Resource Economists Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().