Strategic trade in pollution permits

Dickson, Alex and MacKenzie, Ian A. (2018) Strategic trade in pollution permits. Journal of Environmental Economics and Management, 87. pp. 94-113. ISSN 0095-0696

[img]
Preview
Text (Dickson-MacKenzie-JEEM-2017-Strategic-trade-in-pollution-permits)
Dickson_MacKenzie_JEEM_2017_Strategic_trade_in_pollution_permits.pdf
Accepted Author Manuscript
License: Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 logo

Download (315kB)| Preview

    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.