Specifically, the regulator should sell permits directly, through bilateral negotiation, to the dominant firm, and auction off the remaining permits to the fringe firms.

Paper

Permit markets, market power, and the trade-off between efficiency and revenue raising

Citations: 15

2009

Full text

Abstract

This paper focuses on an emissions permit market dominated by one firm and with a government concerned about social efficiency and permits revenue. In this setting, it is shown that the dominant firm's market power reduces the opportunities for the government to raise non-distortionary revenue from permits without loss of consumer surplus. Since the government's objectives are thus hampered in auctioning permits, the dominant firm should be excluded from the auction. Specifically, the regulator should sell permits directly, through bilateral negotiation, to the dominant firm, and auction off the remaining permits to the fringe firms.

Authors

M. Antelo, Lluís Bru

Journal

Resource and Energy Economics

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