| Abstract: |
Heavy loads of nutrients, i.e. nitrogen and phosphorus, cause severe damages
in many waters in the world. This paper develops a model for nutrient trading
markets for a sea damaged by both nitrogen and phosphorus and faces a dominant
polluter of one or both nutrients. The existence of abatement measures with
simultaneous impacts on both nutrients raises the need for double-dipping in
both markets. It is shown that double-dipping decreases overall abatement
costs for reaching predetermined targets, and reduces efficiency losses of
market power, in particular when the same agent exercises market power in both
markets. An empirical application to the intergovernmental agreement on
reducing nutrient loads to the eutrophied Baltic Sea in North-East Europe
demonstrates cost savings of approximately 25% from introduction of
double-dipping, and that efficiency losses from market power of one dominant
country, Poland, can be reduced by 10%. |