Picture of boy being examining by doctor at a tuberculosis sanatorium

Understanding our future through Open Access research about our past...

Strathprints makes available scholarly Open Access content by researchers in the Centre for the Social History of Health & Healthcare (CSHHH), based within the School of Humanities, and considered Scotland's leading centre for the history of health and medicine.

Research at CSHHH explores the modern world since 1800 in locations as diverse as the UK, Asia, Africa, North America, and Europe. Areas of specialism include contraception and sexuality; family health and medical services; occupational health and medicine; disability; the history of psychiatry; conflict and warfare; and, drugs, pharmaceuticals and intoxicants.

Explore the Open Access research of the Centre for the Social History of Health and Healthcare. Or explore all of Strathclyde's Open Access research...

Image: Heart of England NHS Foundation Trust. Wellcome Collection - CC-BY.

Optimal allocation of tradable emission permits under upstream-downstream strategic interaction

De Feo, Giuseppe and Resende, Joana and Sanin, Maria Eugenia (2012) Optimal allocation of tradable emission permits under upstream-downstream strategic interaction. International Game Theory Review, 14 (4). ISSN 0219-1989

[img]
Preview
PDF
120530ManuscriptIGTR.pdf
Accepted Author Manuscript

Download (228kB) | Preview

Abstract

In this paper we analyze environmental regulation based on tradable emission permits in the presence of strategic interaction in an output market with differentiated products. We characterize firms' equilibrium behavior in the permits and in the output market and we show that both firms adopt "rival's cost-rising strategies". Then, we study the problem of the regulator that aims to maximize social welfare, proposing an efficient criterion to allocate permits between firms. We find that the optimal allocation criterion requires a perfect balance between the difference on firms' price-cost margins in the permits and the difference on firms' markups in the output market. In light of the previous result, we use a simulation to obtain the optimal allocation of permits between firms as a function of output market characteristics, in particular as a function of goods substitutability.