Bilateral Oligopoly, Private Information, and Pollution Permit Markets

28 Pages Posted: 26 Mar 2007

See all articles by David A. Malueg

David A. Malueg

University of California Riverside

Andrew Yates

University of North Carolina (UNC) at Chapel Hill - Department of Economics

Date Written: March 19, 2007

Abstract

We analyze the effects of strategic behavior and private information in pollution permit markets in which all firms have market power. The market is characterized by supply-function equilibria. Firms submit net supplies for permits and a market maker selects the market-clearing price. Net supplies depend on abatement cost functions, which in turn depend on private information parameters. We determine the increase in aggregate abatement costs due to strategic behavior and private information and show that private information attenuates the effects of strategic behavior. We evaluate the common practice of assigning endowments as a simple proportion of historical emissions.

Keywords: bilateral oligopoly, pollution permits, private information

JEL Classification: Q5, L13, D43, D82

Suggested Citation

Malueg, David A. and Yates, Andrew, Bilateral Oligopoly, Private Information, and Pollution Permit Markets (March 19, 2007). Available at SSRN: https://ssrn.com/abstract=975144 or http://dx.doi.org/10.2139/ssrn.975144

David A. Malueg

University of California Riverside ( email )

Economics Department
3136 Sproul Hall
Riverside, CA 92505
United States
951 827 1494 (Phone)

Andrew Yates (Contact Author)

University of North Carolina (UNC) at Chapel Hill - Department of Economics ( email )

Chapel Hill, NC 27599
United States

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