Tradeable Emission Permits in Oligopoly

C. Fershtman, A.J. de Zeeuw

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The paper considers an oligopolistic industry in which pollution is a by-product of production. Firms are assumed to have emission permits that restrict the amount that they pollute. These permits are assumed to be tradeable and the paper discusses a structure in which the same set of firms operates both in the product market as well as in the pollution permits market. The paper demonstrates that in such a structure allowing trade in emission permits is not necessarily beneficial. In particular it may lead to the choice of inferior production and abatement technologies, it may lead to a market equilibrium with lower output rates and higher prices and it may result in a shift of production from a low cost to a high cost firm.
Original languageEnglish
Place of PublicationTilburg
Number of pages30
Publication statusPublished - 1996

Publication series

NameCentER Discussion Paper


  • pollution control
  • oligopoly
  • trade
  • emission permit


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