Double Limit Pricing

Gerard van der Meijden (), Karolina Ryszka and Cees Withagen
Additional contact information
Karolina Ryszka: VU University Amsterdam, the Netherlands

No 15-136/VIII, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: We study fossil fuel extraction by a monopolist who faces demand from a climateaware and a climate-ignorant region. A renewable, perfect substitute for fossil energy is available at constant unit cost. The climate-aware region uses a carbon tax and a renewables subsidy as policy instruments. Due to heterogeneity in climate policies between regions, the fossil fuel price path possibly contains two limitpricing phases. Moreover, the shape of the price path depends on the presence of arbitrators on the market. With arbitrators, the fossil price is continuous. Without arbitrators, the price jumps upward when demand from the climate-aware region drops to zero. A tightening of climate policies results in lower initial resource use. The effect on medium-run extraction and on the duration of the fossil era depends on the presence of arbitrators on the market. We numerically investigate the welfare effects of the policies of the climate-aware region. We find that the carbon tax lowers climate damage. The renewables subsidy, however, only lowers climate damage if there are arbitrators on the market.

Keywords: limit pricing; non-renewable resource; monopoly; carbon tax (search for similar items in EconPapers)
JEL-codes: Q31 Q37 (search for similar items in EconPapers)
Date: 2015-12-18, Revised 2017-01-30
New Economics Papers: this item is included in nep-agr, nep-com, nep-ene, nep-env and nep-res
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://papers.tinbergen.nl/15136.pdf (application/pdf)

Related works:
Journal Article: Double limit pricing (2018)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:tin:wpaper:20150136

Access Statistics for this paper

More papers in Tinbergen Institute Discussion Papers from Tinbergen Institute Contact information at EDIRC.
Bibliographic data for series maintained by Tinbergen Office +31 (0)10-4088900 ().