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Competitive Permit Markets and Vertical Structures: The Relevance of Imperfect Competitive Eco-Industries

Sonia Schwartz () and Hubert Stahn

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Abstract: Permit markets lead polluting firms to purchase abatement goods from an eco-industry, which is often concentrated. This paper studies the consequences of imperfect competition in an eco-industry on the equilibrium choices of the competitive polluting firms. It then characterizes the second best pollution cap. By comparing this situation to a competitive one, we show that Cournot competition on the abatement good market contributes not only to a non optimal level of emission reduction but also to a higher permit price, which reduces the production level. These distortions increase with market power measured by the margin taken by the non competitive firms and suggest a second best less stringent pollution cap

Keywords: imperfect competition; pollution permit market; eco-industry (search for similar items in EconPapers)
Date: 2010-07-12
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Journal Article: Competitive Permit Markets and Vertical Structures: The Relevance of Imperfectly Competitive Eco-Industries (2014) Downloads
Working Paper: Competitive permit markets and vertical structures: the relevance of imperfectly competitive eco-industries (2014)
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