Strategic trade in pollution permits

Alex Dickson; Ian A. MacKenzie

doi:10.1016/j.jeem.2017.04.009

Strategic trade in pollution permits

Alex Dickson, Ian A. MacKenzie

Research output: Contribution to journal › Article › peer-review

105 Citations (Scopus)

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Abstract

Markets for pollution have become a popular regulatory instrument. 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. We identify a unique equilibrium in permit exchange, investigate the properties of this equilibrium, and consider the effect of strategic behavior in the product market.

Original language	English
Pages (from-to)	94-113
Number of pages	20
Journal	Journal of Environmental Economics and Management
Volume	87
Early online date	27 May 2017
DOIs	https://doi.org/10.1016/j.jeem.2017.04.009
Publication status	Published - 31 Jan 2018

Keywords

pollution market
market power
strategic market game

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10.1016/j.jeem.2017.04.009

Dickson-MacKenzie-JEEM-2017-Strategic-trade-in-pollution-permitsAccepted author manuscript, 308 KBLicence: CC BY-NC-ND 4.0

Cite this

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title = "Strategic trade in pollution permits",

abstract = "Markets for pollution have become a popular regulatory instrument. 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. We identify a unique equilibrium in permit exchange, investigate the properties of this equilibrium, and consider the effect of strategic behavior in the product market.",

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AU - MacKenzie, Ian A.

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N2 - Markets for pollution have become a popular regulatory instrument. 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. We identify a unique equilibrium in permit exchange, investigate the properties of this equilibrium, and consider the effect of strategic behavior in the product market.

AB - Markets for pollution have become a popular regulatory instrument. 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. We identify a unique equilibrium in permit exchange, investigate the properties of this equilibrium, and consider the effect of strategic behavior in the product market.

KW - pollution market

KW - market power

KW - strategic market game

UR - http://www.sciencedirect.com/science/journal/00950696

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DO - 10.1016/j.jeem.2017.04.009

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VL - 87

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EP - 113

JO - Journal of Environmental Economics and Management

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Strategic trade in pollution permits

Abstract

Keywords

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