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Pareto-Improving Supply Subsidy in a Simple General Oligopoly Equilibrium Model with Pollution Permits

Author

Listed:
  • Ludovic A. Julien

    (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

  • Bertrand Crettez
  • Pierre-André Jouvet

    (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

Abstract

We introduce a pollution permits market in a two-sector oligopoly equilibrium model. In this model, one commodity is inelastically supplied by one competitive trader and another one is produced by a finite set of oligopolists, using the first commodity as an input. The production of the second commodity is a polluting activity. Introducing a competitive emission permits market solves the pollution control problem but does not alleviate market distortions. We provide some conditions under which giving a supply subsidy to the oligopolists that is financed by a tax on the competitive agent is welfare increasing.

Suggested Citation

  • Ludovic A. Julien & Bertrand Crettez & Pierre-André Jouvet, 2021. "Pareto-Improving Supply Subsidy in a Simple General Oligopoly Equilibrium Model with Pollution Permits," Post-Print hal-03112679, HAL.
    • Handle: RePEc:hal:journl:hal-03112679
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    Cited by:

    1. Ludovic A. Julien & Anicet Kabre & Louis de Mesnard, 2022. "Pollution in strategic multilateral exchange: taxing emissions or trading on permit markets?," Post-Print hal-03791673, HAL.

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