FIRMS’ CHARACTERISTIC AND EQUILIBRIUM WITH TRADEABLE PERMITS MARKET*

Pierre-André Jouvet, Philippe Michel and Gilles Rotillon

Australian Economic Papers, 2007, vol. 46, issue 2, 109-121

Abstract: We study, in a simple model, the partial equilibrium of an industry with n firms endowed by different Cobb‐Douglas technologies which have different pollution effects. The price of input (labour) and the demand curve to the industry are given. Pollution is restricted by a tradeable market of permits in the industry. Each firm is characterised by a parameter combining production efficiency and pollution effect, its e‐characteristic. The equilibrium depends mainly on these e‐characteristics which are linked to the performance of the technologies. In the long run performances are defined per unit of capital. Last, we analyse the consequences of permits’ allocations on the profitability of the firms.

Date: 2007
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