Abstract
This chapter introduces the topic of this book and explains why it is important to study how imperfect competition can affect the ability of environmental regulation to reduce pollution and/or to minimize the cost of meeting environmental targets. After a short review of the relevant literature, this chapter illustrates the content of each part of the volume describing the main findings and the policy implications. In this respect, it should be interpreted as the executive summary of the overall analysis.
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Notes
- 1.
With linear downward sloping demand (variable price elasticity) the outcome is the same, however it is different if iso-elastic demand is assumed.
- 2.
It is to be noted that, apart from those described herein, there are other groups of studies examining the possible adverse effect of environmental regulation. Among them we should mention the contributions by the authors studying the so-called “green paradox” (Sinn 2012; van der Ploeg and Withagen 2010). However, this book does not take into consideration these contributions explicitly because they do not refer specifically to the link between environmental regulation and market structure (imperfect competition).
- 3.
Levin considers Cournot competition. In his model the firms’ cost functions depend on output only. The author does not consider abatement technologies. For another interesting contribution using the Cournot framework see Requate (1993).
- 4.
Following Requate (2005) the intuition is that if the marginal cost differential between the firms is different from the difference in emission coefficients, taxation changes the cost structure between the firms. This can not only lead to a situation where one firm gains, whereas the other firm suffers from a tax increase, but can also cause aggregate pollution to rise. Requate achieves this result by using a cost function depending on output and emissions that is by accounting for abatement. However, he also underlines that if the tax rate is set sufficiently high, so that each firm’s output goes down, then aggregate emissions also have to go down, compared to the laissez-faire level.
- 5.
Chernyavs’ka and Gullì (2009) find that this condition is not necessary for increasing pollution. However, these authors focus on the particular case of the electricity market and carry out a short-run analysis (without abatement technologies).
- 6.
This model is used in the literature on the environmental policy under imperfect competition, see See Conrad and Wang (1993), Bonacina and Gullì (2007), Chernyavs’ka and Gullì (2008) and Gullì (2008). On the methodological side, the attraction of this characterization is that it avoids the implausible extreme of perfect competition and pure monopoly, at the same time escaping the difficulties of characterizing an oligopolistic equilibrium. In particular, this model allows us to overcome the problem of possible inexistent equilibria in pure strategy.
References
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Gullì, F. (2013). Introduction and Summary. In: Pollution Under Environmental Regulation in Energy Markets. Lecture Notes in Energy, vol 6. Springer, London. https://doi.org/10.1007/978-1-4471-4727-5_1
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