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Tax Policy in a Simple General Oligopoly Equilibrium Model with Pollution Permits

Bertrand Crettez, Pierre-André Jouvet and Ludovic Julien

Working Papers from Chaire Economie du climat

Abstract: We introduce a pollution permits market in a general oligopoly equilibrium model. Specifically, we consider a two-commodity economy with one productive sector. The first commodity is inelastically supplied by a set of competitive traders. The second commodity is produced by a set of strategic traders, using the first commodity as an input. The production of the second commodity is a polluting activity. Introducing a competitive emissions permits market solves the pollution control problem but is not sufficient to eliminate market distortions and to reach a Pareto optimal allocation. We study the conditions under which a subsidy to the strategic agents, financed by a tax on the competitive agents, is welfare increasing.

Keywords: oligopoly equilibrium; taxation policy; pollution. (search for similar items in EconPapers)
JEL-codes: D43 D51 H2 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2014
New Economics Papers: this item is included in nep-ene, nep-env, nep-ger, nep-pub and nep-res
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