Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/107757
Authors: 
André, Francisco J.
de Castro, Luis M.
Year of Publication: 
2015
Series/Report no.: 
Nota di Lavoro, Fondazione Eni Enrico Mattei 6.2015
Abstract: 
It has been shown in prior research that cost effectiveness in the competitive emissions permit market could be affected by tacit collusion or price manipulation when the corresponding polluting product market is oligopolistic. We analyze these cross market links using a Stackelberg model to show that under reasonable assumptions, there are no incentives to collude for lobbying prices up. However, incentives for manipulating the price of permits up appear if there is an initial free allocation of permits, which is a policy argument against grandfathering and in favor of auctioning. This effect is increasing with the amount of permits allocated to the leader. Moreover, the changes for price manipulation increase with those changes that tend to undermine the leader's advantage in output production or to reduce the leader’s abatement cost.
Subjects: 
Emissions Permits
Collusion
Market Power
Duopoly
Stackelberg Model
JEL: 
D43
L13
Q58
Document Type: 
Working Paper

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