Environmental Externalities and the Optimal Level of Market Power

Munisamy Gopinath and JunJie Wu

American Journal of Agricultural Economics, 1999, vol. 81, issue 4, 825-833

Abstract: This article derives the condition under which agricultural chemical producers' desire to under-produce, associated with market power, exactly offsets the tendency to overproduce, due to their failure to consider externality costs of agricultural chemicals. This condition is satisfied when the price markup in the chemical industries equals the marginal environmental damages caused by chemicals. Our estimates of price markup for nitrogen, phosphate, and pesticides industries indicate that the welfare loss caused by market power is exactly offset by environmental benefits if the marginal pollution costs are, respectively, eight, nine, and twenty-two cents for each dollar's worth of these chemicals. Copyright 1999, Oxford University Press.

Date: 1999
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American Journal of Agricultural Economics is currently edited by Madhu Khanna, Brian E. Roe, James Vercammen and JunJie Wu

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