Asymmetric Regulation of Identical Polluters in Oligopoly Models

CORE Discussion Paper No. 2004/46

18 Pages Posted: 25 Oct 2006

See all articles by Rabah Amir

Rabah Amir

University of Arizona - Department of Economics; University of Arizona

Niels Nannerup

University of Southern Denmark

Date Written: January 2004

Abstract

Studies of second-best environmental regulation of identical polluting agents have invariably ignored potentially welfare-improving asymmetric regulation by imposing equal regulatory treatment of identical firms at the outset. Yet, cost asymmetry between oligopoly firms may well give rise to private as well as social gains. A trade-off is demonstrated for the regulator, between private costs savings and additional social costs when asymmetric treatment is allowed. Asymmetry is indeed optimal for a range of plausible parameter values. Further, it is demonstrated that for a broad class of abatement cost functions, there is scope for increasing welfare while keeping both total output and total emission constant. Some motivating policy issues are discussed in light of the results, including international harmonization and global carbon dioxide reduction.

Keywords: asymmetric emissions regulation, polluting oligopolists, EU harmonization

JEL Classification: Q2, D8

Suggested Citation

Amir, Rabah and Nannerup, Niels, Asymmetric Regulation of Identical Polluters in Oligopoly Models (January 2004). CORE Discussion Paper No. 2004/46. Available at SSRN: https://ssrn.com/abstract=939519 or http://dx.doi.org/10.2139/ssrn.939519

Rabah Amir (Contact Author)

University of Arizona - Department of Economics ( email )

Tucson, AZ 85721
United States

University of Arizona ( email )

Department of History
Tucson, AZ 85721
United States

Niels Nannerup

University of Southern Denmark ( email )

Department of Business and Economics
Campusvej 55
DK-5230 Odense M
Denmark
+45 65 50 33 44 (Phone)
+45 66 15 87 90 (Fax)

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