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Market power and double-dipping in nutrient trading markets

Ing-Marie Gren () and Katarina Elofsson
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Ing-Marie Gren: Department of Economics, Swedish University of Agricultural Sciences, Postal: Box 7013, Swedish University of Agricultural Sciences, SE-750 07 Uppsala, Sweden

No 2013:2, Working Paper Series from Swedish University of Agricultural Sciences, Department Economics

Abstract: Heavy loads of nutrients, i.e. nitrogen and phosphorus, cause severe damages in many waters in the world. This paper develops a model for nutrient trading markets for a sea damaged by both nitrogen and phosphorus and faces a dominant polluter of one or both nutrients. The existence of abatement measures with simultaneous impacts on both nutrients raises the need for double-dipping in both markets. It is shown that double-dipping decreases overall abatement costs for reaching predetermined targets, and reduces efficiency losses of market power, in particular when the same agent exercises market power in both markets. An empirical application to the intergovernmental agreement on reducing nutrient loads to the eutrophied Baltic Sea in North-East Europe demonstrates cost savings of approximately 25% from introduction of double-dipping, and that efficiency losses from market power of one dominant country, Poland, can be reduced by 10%.

Keywords: nutrient trading; market power; double-dipping; eutrophication; Baltic Sea (search for similar items in EconPapers)
JEL-codes: L19 Q53 Q58 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2013-03-27
New Economics Papers: this item is included in nep-agr, nep-cwa and nep-ind
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Citations: View citations in EconPapers (1)

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