Pollution in strategic multilateral exchange: taxing emissions or trading on permit markets?

Ludovic Julien (), Anicet Kabre () and Louis de Mesnard

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Abstract: We introduce polluting emissions in a sequential noncooperative oligopoly model of bilateral exchange. In one sector a leader and a follower use polluting technologies which create negative externalities on the payoffs of strategic traders who belong to the other sector. By modeling emissions as a negative externality, we show that the leader pollutes more (less) than the follower when strategies are substitutes (complements). Then, we consider the implementation of public policies to control the levels of emissions, namely two taxation mechanisms and a permit market. We study the effects of these public policies. Moreover, we determine the conditions under which these public policies can implement a Pareto-improving allocation.

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Date: 2023
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Published in Bulletin of Economic Research, 2023, 75 (3), pp.717-741. ⟨10.1111/boer.12378⟩

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Related works:
Working Paper: Pollution in strategic multilateral exchange: taxing emissions or trading on permit markets? (2023)
Working Paper: Pollution in strategic multilateral exchange: taxing emissions or trading on permit markets? (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03791673

DOI: 10.1111/boer.12378

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