Strategic trade in pollution permits

Alexander Dickson, Ian A. MacKenzie

Research output: Working paper

18 Citations (Scopus)
51 Downloads (Pure)


Markets for pollution have become a popular regulatory instrument. Yet these markets are often highly concentrated, which may lead to strategic behavior by all participants. In this article we investigate the implications of strategic trade in pollution permits. The permit market is developed as a strategic market game, where all firms are allowed to behave strategically and their roles as buyers or sellers of permits are determined endogenously with price-mediated trade. In a second stage, firms transact on a product market and we allow for a variety of market structures. Our framework establishes the endogenous determination of equilibrium price, market structure, and levels of exchange in the permit market.
Original languageEnglish
Place of PublicationGlasgow
Number of pages27
Publication statusPublished - 29 Jan 2016


  • pollution market
  • market power
  • strategic market game


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