Tradable Quotas Taxation and Market Power

19 Pages Posted: 26 Mar 2016

See all articles by Alessio D'Amato

Alessio D'Amato

University of Rome Tor Vergata - Faculty of Economics

Edilio Valentini

Universita D'Annunzio

Mariangela Zoli

University of Rome Tor Vergata

Date Written: January 27, 2016

Abstract

We show how corrective taxation can improve the efficiency properties of tradable quotas systems affected by market power. Indeed, when only a subset of firms are price takers while the remaining firms enjoy market power, we show that, if the regulator sets an ad hoc taxation on firms' traded quotas, cost effectiveness can be restored without necessarily driving dominant firm(s) net demand to zero. Cost effectiveness with market power and quotas taxation implies some cost in terms of tax revenue that, however, can be justified from a social welfare perspective. Moreover, all firms may result to be better off when the corrective taxation is implemented.

Keywords: tradable quotas markets, market power, tradable quotas taxation

JEL Classification: Q58, H23

Suggested Citation

D'Amato, Alessio and Valentini, Edilio and Zoli, Mariangela, Tradable Quotas Taxation and Market Power (January 27, 2016). CEIS Working Paper No. 371. Available at SSRN: https://ssrn.com/abstract=2754172 or http://dx.doi.org/10.2139/ssrn.2754172

Alessio D'Amato (Contact Author)

University of Rome Tor Vergata - Faculty of Economics ( email )

Via Columbia n.2
Rome, rome 00100
Italy

Edilio Valentini

Universita D'Annunzio ( email )

Dept. of Quantitative Methods & Economic Theory
I-65127 Pescara
Italy

Mariangela Zoli

University of Rome Tor Vergata ( email )

Via Orazio Raimondo, 18,
Roma, 00173
Italy

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