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Firms’ Characteristic And Equilibrium With Tradeable Permits Market

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  • PIERRE‐ANDRÉ JOUVET
  • PHILIPPE MICHEL
  • GILLES ROTILLON

Abstract

We study, in a simple model, the partial equilibrium of an industry with n firms endowed by different Cobb‐Douglas technologies which have different pollution effects. The price of input (labour) and the demand curve to the industry are given. Pollution is restricted by a tradeable market of permits in the industry. Each firm is characterised by a parameter combining production efficiency and pollution effect, its e‐characteristic. The equilibrium depends mainly on these e‐characteristics which are linked to the performance of the technologies. In the long run performances are defined per unit of capital. Last, we analyse the consequences of permits’ allocations on the profitability of the firms.

Suggested Citation

  • Pierre‐André Jouvet & Philippe Michel & Gilles Rotillon, 2007. "Firms’ Characteristic And Equilibrium With Tradeable Permits Market," Australian Economic Papers, Wiley Blackwell, vol. 46(2), pages 109-121, June.
    • Handle: RePEc:bla:ausecp:v:46:y:2007:i:2:p:109-121
    DOI: 10.1111/j.1467-8454.2007.00308.x
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    References listed on IDEAS

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    1. Montgomery, W. David, 1972. "Markets in licenses and efficient pollution control programs," Journal of Economic Theory, Elsevier, vol. 5(3), pages 395-418, December.
    2. P-A. Jouvet & P. Michel & G. Rotillon, 2002. "Capital Allocation and International Equilibrium with Pollution Permits," THEMA Working Papers 2002-02, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
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