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

Ludovic Julien (), Anicet Kabré and Louis de Mesnard ()
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Ludovic Julien: EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique
Anicet Kabré: EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique
Louis de Mesnard: CREGO - Centre de Recherche en Gestion des Organisations (EA 7317) - Université de Haute-Alsace (UHA) - Université de Haute-Alsace (UHA) Mulhouse - Colmar - UB - Université de Bourgogne - UBFC - Université Bourgogne Franche-Comté [COMUE] - UMLP - Université Marie et Louis Pasteur, UBE - Université Bourgogne Europe

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Abstract: 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.

Date: 2022-10-11
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Published in Bulletin of Economic Research, 2022, 75 (3), pp.717-741. ⟨10.1111/boer.12378⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05758527

DOI: 10.1111/boer.12378

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