Pareto-Improving Supply Subsidy in a Simple General Oligopoly Equilibrium Model with Pollution Permits

Ludovic Julien (), Bertrand Crettez () and Pierre-André Jouvet

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Abstract: We introduce a pollution permits market in a two-sector oligopoly equilibrium model. In this model, one commodity is inelastically supplied by one competitive trader and another one is produced by a finite set of oligopolists, using the first commodity as an input. The production of the second commodity is a polluting activity. Introducing a competitive emission permits market solves the pollution control problem but does not alleviate market distortions. We provide some conditions under which giving a supply subsidy to the oligopolists that is financed by a tax on the competitive agent is welfare increasing.

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Date: 2021
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Published in Environmental Modeling & Assessment, 2021, 26, pp.999-1013

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03112679

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