Environmental Policy and Endogenous Market Structure

49 Pages Posted: 21 Jun 2016  

Barbara Annicchiarico

University of Rome, Tor Vergata - Department of Economics and Finance

Luca Correani

Università degli studi della Tuscia

Fabio Di Dio

Sogei S.p.a.

Date Written: June 21, 2016

Abstract

This paper presents a simple dynamic general equilibrium model with supply-side strategic interactions to study the economic effects of mitigating greenhouse gas emissions in an economy with an emission cap and oligopolistic firms competing on prices. With such endogenous market structure a gradual decarbonization policy is likely to induce higher markups, while the number of active firms displays a U-shaped behavior, first decreasing and then increasing. In the long run more firms are active, but they transfer a part of the compliance cost to households by charging a higher markup. The negative effects on the level of economic activity of this anti-competitive outcome are strongly mitigated by recycling policies.

Keywords: Environmental Policy, Dynamic General Equilibrium Model, Endogenous Market Structure.

JEL Classification: E32, Q54, Q58

Suggested Citation

Annicchiarico, Barbara and Correani, Luca and Di Dio, Fabio, Environmental Policy and Endogenous Market Structure (June 21, 2016). CEIS Working Paper No. 384. Available at SSRN: https://ssrn.com/abstract=2798805 or http://dx.doi.org/10.2139/ssrn.2798805

Barbara Annicchiarico (Contact Author)

University of Rome, Tor Vergata - Department of Economics and Finance ( email )

Rome, I-00133
Italy

Luca Correani

Università degli studi della Tuscia ( email )

Rettorato, Via S.M.in Gradi n.4
VIiterbo
Italy

Fabio Di Dio

Sogei S.p.a. ( email )

Via Mario Carucci n. 99 e 85
Roma, 00143
Italy
+39068544 9092 (Phone)

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