The Effect of Trading of Emission Permit on Product Market under Conditions of Duopoly

摘要

Tradable emission permits are increasingly pursed as a regulatory instrument, to control for environmental quality. However,in the presence of market power, regulation through an allocation of tradable rights genially yields inefficient outcomes.This papcr dcmonstrates that when the product market is duopoly,price-taking behavior in pewits market ensures transfer of licenses to the less efficient abatement firms,which then become more aggressive in the product market and acquire addthonal permits. Besides, it may result in higher production of firms whose cost is higher, and lower productions of firms whose cost is lower.