On Pollution Permit Banking and Market Power
نویسندگان
چکیده
We consider a pollution permits market in which there are a large polluting firm plays and a fringe of competitive firms. To smooth compliance towards the longrun emissions goal, firms are initially allocated a stock (i.e., bank) of permits to be gradually consumed. We first show how the large firm can credibly manipulate the spot market in subgame-perfect equilibrium. Motivated by features observed in the market for sulfur dioxide emissions of the US Acid Rain Program, we then show that the introduction of stock transactions has no effects on market power, but that forward trading and incomplete observability of stock holdings do have pro-competitive effects. JEL classification: L51; Q28.
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